PENNSYLVANIA HOUSING FINANCE A GENCY · 2016-06-06 · by modifying or refinancing unaffordable mortgage loans. To date, the programs have already made $20,000,000 of loans to help

P ENN S Y LVAN I A HOU S I NG

F I NANC E AG ENC Y

REPORT FOR THE YEARS

2007–2008

1

Edward G. RendellGOVERNOR

Commonwealth of Pennsylvania

The Commonwealth’s investment in its citizens,

homes, and communities has never been more

important than it is today. Because Pennsylvania was

better prepared to deal with the problems posed by

the national credit crisis, we have been better able to

respond to help those who have been most affected.

But that doesn’t mean the job is complete; much

remains to be done and we are committed to continue

developing new ways to help those with difficulties,

strategies to strengthen our existing programs, and

methods to deliver on the promise of a brighter future

for ourselves and our children. I encourage and

support PHFA’s efforts to make decent, safe, affordable

housing the birthright of every Pennsylvanian.

MESSAGE FROM THE GOVERNOR

M I S S I O N S T A T E M E N T

In order to make the Commonwealth a better place to live while fostering community andeconomic development, the Pennsylvania Housing Finance Agency provides the capital

for decent, safe, and affordable homes and apartments for older adults, persons of modestmeans, and those with special housing needs.

On the cover: the Brentwood in Philadelphia’s Parkside Historic District, restoredwith an allocation of tax credits from PHFA, provides 43 affordable apartments.

ContentsMessage from Governor Edward G. Rendell 1

Message from Brian A. Hudson, Sr. 3

Board of Directors 14

Financial Statements and Required Supplemental Information forJune 30, 2007 and 2006 15

Financial Statements and Required Supplemental Information forJune 30, 2008 and 2007 49

Staff Listing 86

2 3

Brian A. Hudson, Sr.EXECUTIVE DIRECTOR &CHIEF EXECUTIVE OFFICER

Pennsylvania Housing Finance Agency

The Pennsylvania Housing Finance Agency’s

commitment to providing the funds for

affordable homes and apartments remains strong.

During the difficult economic times the nation has

recently experienced, PHFA addressed these

challenges by encouraging responsible lending, by

providing funds for decent, safe, rental units, and

by creating new programs to help families facing

foreclosure. Such efforts are vital to the

Commonwealth’s economic future. On behalf of

the Agency’s Board and staff, I would like to

express my appreciation to Governor Rendell and

his Administration, the State Senate and House of

Representatives, the United States Congress, and

to the citizens of Pennsylvania for the confidence

you have shown in PHFA.

MESSAGE FROM THE EXECUTIVE DIRECTOR

Affordable housing provides afoundation for employment and well-being.

Thousands of Pennsylvanians have benefitedfrom PHFA programs. Now, more than ever,

this work is vital and has lasting value.

5

One of the biggest efforts undertaken by

PHFA is providing the financial

opportunity for families and individuals to

purchase homes of their own. Agency

programs include first mortgage loans,

downpayment and closing cost assistance,

loans to make accessibility improvements,

refinancing of unaffordable mortgages, on-lot

sewage system upgrade

financing, and credit

counseling. Funding for

these initiatives is made

available through a network

of participating lenders.

Because PHFA services all

its loans, the Agency can

work with borrowers in the

event of payment problems, thereby reducing

the chances of homeowner default and

foreclosure.

In the past two years, using funds from its

sale of mortgage revenue bonds, the Agency

provided 12,000 Pennsylvania families

affordable mortgages that allowed them to

buy homes throughout the state. A record

7,000 home purchase loans were made in

2007 and, in 2008, another

record 2,800 Keystone

PLUS assistance loans

helped buyers with lower

incomes and limited assets

to avoid predatory loans

and reap the benefits that

accrue to homeownership.

Staying optimistic in the current environment can be a daunting challenge. It

seems that housing organizations everywhere are beset by problems, and struggle

to remain relevant and productive. That is why it is reassuring to know that,

although headlines constantly proclaim some of the worst economic times in three-

quarters of a century, the programs of the Pennsylvania Housing Finance Agency

have stayed viable and continue to meet the needs of Commonwealth citizens for

good, safe homes and apartments.

Increasing opportunities to live in decent surroundings promises a brighter

present and a

better future to

citizens across the

state. PHFA

programs help

fulfill this promise by addressing the needs both of individuals and organizations.

Renters and homebuyers alike benefit because of Agency programs to help lower

the cost of their lease or mortgage payments, while builders, developers, lenders,

real estate professionals, and others involved in the business of delivering

affordable housing are able to take advantage of a wide range of options, allowing

them to more effectively serve their clients.

By making the most of existing programs, exploring new initiatives, and

4

PENNSYLVANIA HOUSING FINANCE AGENCY

2007-2008REPORT OF THE

HOMEOWNERSHIP

PHFA is able to offer good news about housing by providingCommonwealth citizens affordable mortgage loans, no-fee housing

counseling and anti-predatory lending training, foreclosureprevention programs, and decent rental housing for older adults,

families of modest means, and persons with disabilities.

PHFA continues to operate programs to enhance multifamily rentalhousing and single family homeownership opportunities, including fore closure prevention through the Homeowners’ Emergency MortgageAssistance Program. In addition to these, the Agency has implementednew measures to address current conditions in the mortgage loansector and is tackling the stubborn adverse economic conditions thatweaken neighborhoods, threaten mortgage markets, and underminerental development.

Funding for these initiatives comes from a number of sources,including tax credits and transfers from state and federal sources, butthe Agency primarily counts on program fees and the sale of securitiesto investors throughout the nation. A substantial part of earnings isused to subsidize PHFA’s housing programs.

Capital Heights, Harrisburg

continued on page 6

continued on page 7

6 7

More than 20 percent of PHFA’s

homeownership loans were for minority

buyers in 2008, an all-time high.

In 2008, 364 buyers took advantage of the

Agency’s HOMEstead downpayment and

closing cost assistance program, an additional

PHFA record.

The fact that typical PHFA borrowers use

only a quarter of their income for mortgage

payments, along with extensive

homeownership counseling initiatives,

reflects PHFA’s commitment to sound and

prudent lending policies. By using proven

mortgage products, the Agency has

maintained remarkably low delinquency and

foreclosure rates: five times lower for

conventional-, and three times lower for

government-insured loans. Such impressive

statistics can also be attributed to a sensible

approach toward loan servicing. This is

particularly impressive when considering that

nearly all of the 50,000-plus existing Agency-

financed loans are for first-time homebuyers.

In October 2007 PHFA also instituted two

mortgage re-finance programs, called REAL

and HERO, to address the looming sub-prime

and predatory lending crisis. These Agency

programs assist Commonwealth homeowners

by modifying or refinancing unaffordable

mortgage loans. To date, the programs have

already made $20,000,000 of loans to help

more than 300 hard-pressed borrowers avert

foreclosure. The City of Philadelphia and

PNC Bank have joined financially in this

first-of-its-kind endeavor.

More than $5,000,000 in Renovate and

Repair Program loans were made to help

qualified borrowers fund home-improvement

loans in formerly underserved areas.

Along with the Office of Long Term

Living (jointly operated by the Pennsylvania

Departments of Aging and Public Welfare),

PHFA has begun to improve access to

information about home modifications. This

program can be extended to help renters in

the future.

PHFA also provided in-person training

and education about Agency

programs to more than 3,000

lending institution staff

members and real estate

professionals, made personal outreach to

7,000 individuals at homebuyer events, and

trained over 600 program affiliates using

newly created Web-based lender training.

In addition, the Agency’s community

revitalization initiatives, collectively called the

Homeownership Choice Programs, have

encouraged residential construction in urban

cooperating with other housing-interest groups, PHFA has furnished the

leadership necessary to improve living conditions in Pennsylvania.

In spite of the difficulties now confronting the nation, PHFA remains

committed to finding ways to offer the financial resources to develop and

preserve affordable rental housing, to underwrite mortgage loans for those seeking

to purchase homes, and to prevent foreclosures. Within these major areas, the

Agency has moved to broaden efforts such as promoting energy conservation to

maintain multifamily complexes in the state’s housing stock, or of ensuring that

every Pennsylvanian with access

to the Internet can find the

information needed to locate

rental units. Complementing

these measures are various

counseling and educational events

encompassing a wide range of

housing issues, all directed toward

informed, knowledgeable

consumers.

The underlying strength of Agency-issued securities remains high because of

the prudence and care exhibited in program management. With that in place,

PHFA plans to continue funding production programs as it has in the past, in

order to offer financial support for housing. It will seize any appropriate

opportunity to leverage capital for worthwhile projects.

Analyzing value and potential rather than merely reacting to fear-based inertia

will help lead the Nation out of the fiscal crisis. PHFA has been in the vanguard

of state housing finance agencies addressing investors’ concerns. The message

PHFA funding for construction and rehabilitationcreates thousands of jobs in the building trades.

Nothing rivals the security that comes from having a goodplace to live. PHFA’s programs help families buy homes of

their own, find decent apartments, and improve their lives.

continued on page 8

continued on page 9

98

areas and older communities by helping builders

turn neglected neighborhoods into attractive

places to live. They offer funding for new

construction and rehabilitation, blight

eradication, and mixed-use development.

By awarding $22,100,000 in 2007 and

2008, PHFA brought its total HCP

investment to $87,695,000 for 2,369 homes,

270 apartments, and 78 commercial spaces in

78 developments across the state. This

funding has generated another half-billion

dollars of investment from outside sources.

Helping prospective homeowners make

informed decisions and guiding families

toward financial independence is a primary

goal of PHFA’s Comprehensive Housing

Counseling Initiative. It has proven effective

in expanding homeownership opportunities,

increasing minority ownership, fighting

predatory lending, and preventing foreclosure.

There are more than 100 organizations

now participating in

the CHCI statewide

network, as evidenced

by the 77 percent

increase in counselor

training. The program’s

success has helped

create a remarkable

five-fold drop in

delinquency rates for Agency-financed loans.

By the end of 2008, more than 25,000 clients

had used this service.

An additional 22,000 families will be served

through PHFA’s partnership with Neighbor -

Works of America’s National Foreclosure

Mitigation Counseling Initiative, which has

awarded the Agency more than $14,000,000 to

support its counseling efforts through 2009.

The Homeowners’ Emergency Mortgage

Assistance Program is a nationally recognized

measure that provides temporary, short-term

funding to cure mortgage delinquencies. A

revolving fund using state appropriations and

loan repayments for operation, it is one of the

country’s most successful and cost-effective

homelessness prevention efforts, and a huge

factor in encouraging neighborhood stability.

In the past two years, this pioneering

program disbursed $20,000,000 to help

homeowners remain in their homes. Since its

inception in 1984,

HEMAP has invested

$435,000,000 to save

42,000 homes at an

average cost of about

$10,300. The overall

repayments amount to

$243,000,000.

conveyed is that mortgage revenue bonds are solid instruments yielding excellent

returns in turbulent times. Reaction to investor educational seminars PHFA has

conducted the past year has been overwhelmingly positive, reflecting an

awareness that the Agency is a fiscally sound, well-managed organization

dedicated to long-term stability. During more than 35 years of steady growth, the

Agency has offered excellent returns on investment, backed by performing loans,

which give purchasers of PHFA bonds the assurance they seek in structuring

their portfolios.

Building on this financial foundation, PHFA has faced the economy’s

slowdown, and its effects on Pennsylvanians, with calmness and deliberation in

order to best be of service. Throughout the past two years, even as many

renowned institutions were withdrawing from the affordable housing sector,

PHFA continued to

make loans to developers

of multifamily rental

units, and remained

steadfast in its

commitment to helping

homebuyers all across the Commonwealth.

Maintaining the high quality of multifamily housing complexes is increasingly

more vital, especially in view of the aging of developments that house so many

residents who require assistance in making rental payments. That is why an

ongoing preventive maintenance program, vigilant management oversight, and

frequent financial reviews are all part of the Agency’s normal procedures to

ensure continued utility of these valuable apartment dwellings. In addition,

Knowledge and dedication are in plentiful supply amonghousing organizations across Pennsylvania. However

committed PHFA may be to improving the state’sopportunities, the Agency can’t accomplish its mission

alone. By creating partnerships, resources are leveragedfor maximum benefit to citizens.

continued on page 10


The Villareal family ofErie has benefittedfrom both PHFA

rental andhomeownership

programs.

1110

PHFA’s rental housing programs offer

development sponsors financing and tax credits

to build and rehabilitate privately-owned, tax-

paying, affordable apartment units across

Pennsylvania. The resulting structures are closely

monitored so that they remain safe, enduring, and

attractive investments in the Commonwealth’s

housing stock.

Rental activity progressed with PHFA’s

approval of $44,218,000 of PennHOMES and

federal HOME funds for 1,846 affordable units in

32 multifamily complexes in 2007 and 2008.

During this period, the Agency also authorized

$131,034,000 of tax-exempt bond issuance

authority to Pennsylvania’s county and municipal

entities for another 1,973 much-needed

apartments.

Heavy demand for tax credits continued under

this program with requests leading available supply

by a three-to-one margin. And, despite the

downturn in the syndication markets that has

caused a shortfall in equity generation, PHFA is

working to increase credit availability, thereby

enhancing economic feasibility for additional units.

In its Tax Credit Allocation Plan, PHFA

emphasizes parts of the Commonwealth that

have the highest need for affordable housing and

directs credits to areas promising the best

opportunity to meet revitalization goals. By

awarding all tax credit allocations and

PennHOMES funding in a single cycle, the

Agency has been able to ensure that sufficient

financial resources are in place for the

preservation, rehabilitation, or new construction

of affordable units for supportive housing and for

properties that had significant community

impact. This process has been facilitated with the

use of $12,060,000 of bridge loan financing to

help sponsors more easily move

toward construction starts.

With the assistance of the

Pennsylvania Office of Long

Term Living, PHFA also

committed $12,243,000 to four

new LIFE Centers for older adults.

The Agency has not limited its multifamily

activity to finance alone. It used the capabilities

afforded by the internet to improve access to

information, not merely about PHFA programs, but

about affordable housing provided by many other

county, municipal, and privately funded

organizations. The Quick Connections free electronic

newsletter for property managers and service

providers now has 3,000 monthly subscribers, while

the Web-based Pennsylvania Affordable Apartment

Locator continues to improve its breadth and scope

with more than 75,000 apartments shown in 1,315

listings at the end of 2008.

PHFA has undertaken measures to improve operating efficiencies, including

encouraging energy-saving designs, funding utility audits in existing projects, and

working with foundations, environmental groups, and governmental entities to

define new techniques for optimum cost savings.

Because there is always a potential for economic conditions to erode even

more than they already have, the Agency will renew its utilization of appropriate

strategic solutions that contribute to strong,

safe, and stable growth in both the housing

financial and housing infrastructure areas.

This includes working with the United

States Department of Housing and Urban

Development, and its subsidiaries, Fannie

Mae and Freddie Mac, as well as the

Federal Home Loan Banks, for sources of

liquidity to direct toward improved

dwellings. Not only will this help

Pennsylvania, it will also provide these

enterprises with valuable, high-performing

assets, further encouraging the housing

recovery at a time when many market

functions have been damaged.

The Agency strongly believes that such long-term investments, applied

strategically, will improve its efforts to have a positive effect on the state’s

housing situation, even at times like the present. By anticipating events and

standing ready to act swiftly and decisively, PHFA is a vital component in the

overall recovery that will come.

Rental developments funded by PHFA represent a widevariety of housing models, sponsoring organizations, and

programmatic directions, but they share one thing incommon; without the support and encouragement of a

great many participants, they wouldn’t exist.

Marty and IreneCoburn financed theirfirst home with aPHFA mortgage.

RENTAL HOUSING



1312

With a goal of broadening its vendor-selection

base, PHFA’s Minority and Women’s Business

Initiative has created a Web-based directory to

assist housing partners in locating the goods and

services they seek. This new innovation provides

information by trade classification, region or

county, and permits searches by vendor name and

business category.

Webinars are now integral to the training

PHFA offers its service providers and housing

managers. Although regional meetings are a

mainstay in upholding the high standard of

professionalism expected of the Agency’s

partnerships, cyber-conferencing allows

participants to benefit from additional training

without the expense involved in off-site events.

The importance of PHFA’s supportive housing

programs can also be seen in such efforts as the

following:

•The 12-year-old Family Supportive Services

Escrow Program that provides help, including

employment, education, mentoring, and after-

school activities for youth

to nearly 1,000 beneficiary

families in the City of

Philadelphia.

•Family Resource

Centers helping 1,200

families in counties across

the Commonwealth.

•The three-year-long

Healthy Living pilot

program to determine the effect of health and

access to medical care on self-sufficiency for

lower-income families.

•Partnerships between 12 institutions of

higher learning and the owners of 12 PHFA-

financed properties in the Student Connections

program, a measure that incorporates work-based

learning for college students with educational

skills for participating developments.

•The StrongWomen exercise program to help

improve health and encourage independence

among older residents, implemented with the

help of the Pennsylvania Department of Health

and the Pennsylvania State Extension Service.

•Eighty-eight sites now taking part in the

two-decade old Supportive Services program.

Any money generated from the program is

recycled into training and service programs.

The Agency also administers Section 8

Housing Assistance Payment Contracts on

44,527 units in 561 rental properties for the

federal government.

The Commonwealth

Cornerstone Group, a

PHFA-created nonprofit,

received a New Markets Tax

Credit allocation of

$60,000,000 in 2008 that

will be used to create

business and job

opportunities in targeted

areas of need.

Nowhere is this relevancy better demonstrated than with the introduction in

October 2007 of the REAL and HERO initiatives, two new home refinance

programs to help hard-pressed homeowners pay their mortgages. As it became

more apparent that a national problem in affordability was occurring, the Agency

implemented these programs to squarely address the matter in Pennsylvania;

borrowers who found themselves owing more than their houses were worth as

well as those whose mortgage payments had become unaffordable were the

intended beneficiaries of the effort. Acting quickly and using its considerable

secondary market mortgage lending experience, the Agency has helped the

Commonwealth avoid the

deluge of bad debt that

has drastically afflicted so

many other parts of the

country.

As the federal government takes action to catalyze a recovery, PHFA will

realize additional opportunities for expanding production and preservation of

housing in ways that cannot be anticipated. What can be foreseen, however, are

needs, including those that recently have become apparent. Leading these are a

need for greater flexibility in directing resources and a growing awareness that

high energy costs have consequences to the long-term survival of affordable

rental housing. That is why the Agency has positioned itself to make the most

of every opportunity to reduce cost, improve quality, and broaden the reach of

all its programs.

PHFA encourages more affordable, environmentallysustainable, and energy-efficient homes and apartments,

in its policies and programs.This helps improveneighborhoods, stabilize communities, and contributes to

the Commonwealth’s economic well-being.

WoodCrest RetirementResidence—

Allegheny County

14

B O A R D O F T H EP E N N S Y L V A N I A H O U S I N G F I N A N C E A G E N C Y

The Honorable Steven Kaplan

Gary E. Lenker

The Honorable George E. Cornelius

Morris J. Dean, Esq. Noel Eisenstat Lisa R. Gaffney

The Honorable Robert M. McCord

Thomas B. Hagen James J. Mellow John Paone

Stuart E. Price The HonorableEstelle B. Richman

Mark Schwartz, Esq. Howard B. Slaughter, Jr.,D.Sc.

Chairman Vice Chairman

Members

15


BASIC FINANCIAL STATEMENTS ANDREQUIRED SUPPLEMENTAL INFORMATIONWITH REPORT OF INDEPENDENT AUDITORS

JUNE 30, 2007 AND 2006

INDEX

Page

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Report of Independent Auditors on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed inAccordance with Government Auditing Standards . . . . . . . . . 17

Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . 18

Basic Financial Statements

Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Statements of Revenues, Expenses and Changes in Net Assets . 24

Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Required Supplemental Information

Schedule of Retirement Plan Funding Progress . . . . . . . . . . . . . . 48

1716

Report of Independent Auditors

Members of the Board of DirectorsPennsylvania Housing Finance Agency

We have audited the accompanying financial statements of the General Fund, Multi-family Program, Single FamilyProgram, Insurance Fund and Homeowners Emergency Mortgage Assistance Program (HEMAP) as of and for theyear ended June 30, 2007, which collectively comprise the basic financial statements, as listed in the table of con-tents, of the Pennsylvania Housing Finance Agency (PHFA), a component unit of the Commonwealth of Penn syl -vania. These financial statements are the responsibility of PHFA’s management. Our responsibility is to express opin-ions on these financial statements based on our audit. The financial statements of PHFA as of and for the year endedJune 30, 2006 were audited by other auditors whose report dated November 15, 2006 expressed an unqualifiedopinion on those financial statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States and the stan-dards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller Generalof the United States. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. We were not engaged to perform an auditof PHFA’s internal control over financial reporting. Our audit included consideration of internal control over finan-cial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the pur-pose of expressing an opinion on the effectiveness of PHFA’s internal control over financial reporting. Accordingly,we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accounting principles used and significant estimates madeby management, and evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective finan-cial position of the General Fund, Multi-family Program, Single Family Program, Insurance Fund and HEMAP ofPHFA, as of June 30, 2007, and the respective changes in financial position and cash flows for the year then endedin conformity with accounting principles generally accepted in the United States.

In accordance with Government Auditing Standards, we have also issued our report dated September 26, 2007 on ourconsideration of PHFA’s internal control over financial reporting and on our tests of its compliance with certain pro-visions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is todescribe the scope of our testing of internal control over financial reporting and compliance and the results of thattesting, and not to provide an opinion on the internal control over financial reporting or on compliance. That reportis an integral part of an audit performed in accordance with Government Auditing Standards and should be consid-ered in assessing the results of our audit.

Management’s Discussion and Analysis and the Schedule of Retirement Plan Funding Progress, on pages 18 through47 and 48, respectively, are not a required part of the basic financial statements but are supplementary informationrequired by the Governmental Accounting Standards Board. We have applied certain limited procedures, which con-sisted principally of inquiries of management regarding the methods of measurement and presentation of therequired supplementary information. However, we did not audit the information and express no opinion on it.

September 26, 2007

A member firm of Ernst & Young Global Limited

Report of Independent Auditors Report of Independent Auditors on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial StatementsPerformed in Accordance with Government Auditing Standards

Ernst & Young LLPTwo Commerce SquareSuite 40002001 Market StreetPhiladelphiaPennsylvania 19103-7096

Phone: (215) 448-5000Fax: (215) 448-4069www.ey.com

Report of Independent Auditors on Internal ControlOver Financial Reporting and on Compliance

and Other Matters Based on an Audit of the Financial StatementsPerformed in Accordance with Government Auditing Standards


We have audited the financial statements of the General Fund, Multi-family Program, Single Family Program, Insurance Fund andHomeowners Emergency Mortgage Assistance Program (HEMAP) as of and for the year ended June 30, 2007, which collectivelycomprise the basic financial statements of the Pennsylvania Housing Finance Agency (PHFA), a component unit of theCommonwealth of Pennsylvania, and have issued our report thereon dated September 26, 2007. We conducted our audit inaccordance with auditing standards generally accepted in the United States and the standards applicable to financial audits con-tained in Government Auditing Standards, issued by the Comptroller General of the United States. Other auditors audited thefinancial statements of PHFA as of and for the year ended June 30, 2006, whose report thereon dated November 15, 2006expressed an unqualified opinion.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered PHFA’s internal control over financial reporting as a basis for designing ourauditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of express-ing an opinion on the effectiveness of PHFA’s internal control over financial reporting. Accordingly, we do not express an opin-ion on the effectiveness of PHFA’s internal control over financial reporting. A control deficiency exists when the design or oper-ation of a control does not allow management or employees, in the normal course of performing their assigned functions, to pre-vent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficien-cies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordancewith generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the enti-ty’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote like-lihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of thissection and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or materialweaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weak-nesses, as defined above.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether PHFA’s financial statements are free of material misstatement, we per-formed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance withwhich could have a direct and material effect on the determination of financial statement amounts. However, providing an opin-ion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion.The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported underGovernment Auditing Standards.

This report is intended solely for the information and use of the Members of the Board of Directors, management, others withinthe entity, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone otherthan these specified parties.

September 26, 2007A member firm of Ernst & Young Global Limited

Ernst & Young LLPTwo Commerce SquareSuite 40002001 Market StreetPhiladelphiaPennsylvania 19103-7096

Phone: (215) 448-5000Fax: (215) 448-4069www.ey.com

MANAGEMENT’S DISCUSSION AND ANALYSISJune 30, 2007 and 2006

This discussion and analysis of the financial performance of the Pennsylvania Housing Finance Agency (“Agency”) isrequired supplementary information. It introduces the financial statements for the fiscal year ended June 30, 2007 withselected comparative information for the fiscal year ended June 30, 2006 and 2005. It provides the financial highlightsand assessments that, in management’s view, significantly affected the Agency’s overall financial position. Readers areencouraged to consider the information presented in conjunction with the financial statements as a whole, which followthis section.

(in thousands of dollars) Percentage PercentageJune 30, June 30, June 30, Change Change2007 2006 2005 2007/2006 2006/2005

AssetsMortgage loan receivables $ 3,859,214 $ 3,368,407 $ 2,954,440 14.6% 14.0%Capital assets 35,411 35,434 35,445 –0.1% 0.0%Other assets 1,192,595 1,070,958 1,238,934 11.4% –13.6%

Total assets $ 5,087,220 $ 4,474,799 $ 4,228,819 13.7% 5.8%

LiabilitiesLong-term liabilities 4,137,254 3,550,821 3,371,236 16.5% 5.3%Other liabilities 238,229 256,229 207,458 –7.0% 23.5%

Total liabilities $ 4,375,483 $ 3,807,050 $ 3,578,694 14.9% 6.4%

Net assets:Invested in capital assets $ 15,456 $ 15,488 $ 15,635 –0.2% –0.9%Restricted 83,060 90,126 87,867 –7.8% 2.6%Unrestricted 613,221 562,135 546,623 9.1% 2.8%

Total net assets $ 711,737 $ 667,749 $ 650,125 6.6% 2.7%

Percentage PercentageJune 30, June 30, June 30, Change Change2007 2006 2005 2007/2006 2006/2005

Operating Revenues:Interest on mortgage loans $ 181,445 $ 158,181 $ 151,030 14.7% 4.7%Federal program awards 311,745 289,228 280,033 7.8% 3.3%Other income 86,255 56,215 73,426 53.4% –23.4%

Total Operating revenue 579,445 503,624 504,489 15.1% –0.2%

Operating Expenses 535,177 485,656 459,978 10.2% 5.6%Non-operating Revenue (Expense) (280) (344) 792 –18.6% –143.4%Change in net assets $ 43,988 $ 17,624 $ 45,303 149.6% –61.1%

FINANCIAL ANALYSISThe following sections will discuss the Agency’s financial results for the three-year period ended June 30, 2007 andshould be read in conjunction with the audited financial statements that follow this section. The amounts discussedbelow have been rounded to facilitate reading of this analysis.

Changes in Financial Position The following tables represent the condensed Balance Sheet, Statement of Revenues, Expenses and Changes in NetAssets:

BASIC FINANCIAL STATEMENTSThe basis financial statements include three required statements that provide different views of the Agency. They are theBalance Sheet, the Statement of Revenues, Expenses and Change in Net Assets, and the Statement of Cash Flows andthe accompanying notes to the financial statements.

The Balance Sheet provides information about the liquidity and solvency of the Agency by indicating the nature and theamounts of investments in resources (assets), the obligations to Agency creditors (liabilities) and net assets. Net assetsrepresent the amount of total assets less liabilities. The organization of the statement separates assets and liabilities intocurrent and non-current.

The Statement of Revenues, Expenses and Change in Net Assets accounts for all the current year’s revenue and expens-es in order to measure the success of the Agency’s operations over the past year. It can be used to determine how theAgency has funded its costs. By presenting the financial performance of the Agency, the change in net assets is similar tonet profit or loss for a business. This statement is organized by separating operating revenues and interest expense fromnonoperating revenue and expenses. Operating revenue and interest expense are defined as those relating to our pri-mary business of funding homes and apartments throughout the Common wealth. Nonoperating revenue and expensesare those that do not contribute directly to our primary business.

The Statement of Cash Flows is presented using the direct method of reporting. It provides information about theAgency’s cash receipts, cash payments and net changes in cash resulting from operations, investing, and financing activ-ities. Cash collections and payments are presented in this statement to arrive at the net increases or decreases in cashand cash equivalents for each year.

These statements are accompanied by a complete set of notes to the financial statements and required supplementaryinformation. They present information that is essential in understanding the financial statements, such as the Agency’saccounting methods and policies providing information about the content of the financial statements. Additionally,details of contractual obligations, future commitments, contingencies and developing events that could materially affectthe Agency’s financial position are disclosed.

Financial HighlightsAs a result of this year’s operations, the Agency’s net operating income was $44 million as compared with $18 millionin the prior year. Profitability, based on net operating income, as measured by the adjusted return on average assets(excluding the change in the fair value of investments) remained constant with the prior year at .8% at June 30, 2007.During the year ended June 30, 2005, the adjusted return on average assets was 1%. The change in the fair value hasbeen removed from the ratio due to the volatility of the return.

During the fiscal year ended June 30, 2007, the Agency’s total assets increased by $612 million due primarily to changesin mortgage loans and investments. Total liabilities increased by $568 million due to increases in the related debt tofinance mortgage loans. During the fiscal year ended June 30, 2006, total assets increased by $246 million and total lia-bilities increased by $228 million over the prior year. During the year ended June 30, 2005, total assets increase byapproximately $371 million and liabilities increased by $326 million over the prior year.

18 19

MANAGEMENT’S DISCUSSION AND ANALYSIS, continued

Loan PortfoliosPurchased and construction mortgage loan portfolios are the Agency’s primary performing assets. The total loan port -folio of the Agency increased $491 million to $3.859 billion at June 30, 2007 from $3.368 billion at June 30, 2006, afteradjustments for loan loss. The total loan portfolio of the Agency increased 12.5% to $3.368 billion at June 30, 2006 from$2.999 billion at June 30, 2005, after adjustments for loan loss. Increases in the mortgage loan portfolios resulted frommortgage loan advances for construction and the purchases of loans exceeding mortgage loan repayments and loan pay-offs. Loan portfolio increases were primarily driven by positive economic conditions escalating housing demand. The following are key highlights of loan related activities:

• During the year, the Multifamily Program funded approximately $43 million of PennHOMES loans that provide con-struction and permanent loan financing for rental housing development. The Multifamily portfolio increased to $550million as of June 30, 2007, from $547 million as of June 30, 2006 after adjustments for normal principal payments.During the prior year, the Multifamily Program funded approximately $38 million of PennHOMES loans increasingthe portfolio to $547 million as of June 30, 2006, from $534 million as of June 30, 2005 after adjustments for nor-mal principal amortization payments.

• The Single Family Program purchased approximately $728 million of new mortgage loans increasing the SingleFamily portfolio to $3.261 billion as of June 30, 2007, from $2.774 billion as of June 30, 2006 after adjustments fornormal principal payments. During the prior year, the Single Family Program purchased approximately $607 millionof new mortgage loans increasing the portfolio to $2.774 million of June 30, 2006, from $2.420 million as of June 30,2005 after adjustments for normal principal payments.

• HEMAP disbursed approximately $23 million of emergency mortgage assistance loans during the year. The portfolioremained constant with the prior year at $48 million as of June 30, 2007 and 2006. During the prior year, HEMAPdisbursed approximately $23 million of assistance loans increasing the portfolio to $48 million as of June 30, 2006,from $46 million as of June 30, 2005.

Long-Term Debt ActivityDuring the current year, total liabilities increased by $568 million mainly as a result of the issuance of long-term bondsin order to provide funds needed to make new mortgage loans, described previously. The Single Family Program issuedfive separate mortgage revenue bonds totaling approximately $917 million. Approximately one-half of the proceeds weremade available to purchase new mortgages loans. The remaining portion were made available for the purchase of newmortgage loans through the refunding of certain outstanding bonds series to reduce total debt service in future years.The Multifamily Program issued one Multifamily Development Bond totaling $12.6 million. See Note G and J for furtherinformation.

During the prior fiscal year, total liabilities increased by $185 million as a result of the issuance of long-term bonds inorder to provide funds needed to make new mortgage loans. The Single Family Program issued four separate single-fam-ily mortgage revenue bonds totaling approximately $530 million. Approximately one-half of the proceeds were madeavailable to purchase new mortgages loans. The remaining portion was used for the refunding of certain outstandingbonds series to reduce total debt service in future years. Total long-term debt outstanding, net of redemptions and sched-uled maturities, increased by $165 million during the fiscal year ended June 30, 2006.

Change in Net AssetsThe Agency reports financial activity financed with debt that is secured solely by the pledge of net revenues from thatactivity as well as activity that is not supported by taxes or similar revenue. The term net assets defines the surplus ordeficit of that activity. In the governmental environment, net assets consist of invested in capital assets, net of relateddebt, restricted and unrestricted. Capital assets, net of related debt are Agency owned capital assets reduced by the out-standing balances of any bonds or other borrowings that are attributable to the acquisition, construction or improve-ment of those assets.

Restricted net assets as those subject to constraints that are either externally imposed by creditors, grantors, laws or reg-ulations of other governments or imposed by law through constitutional provisions or enabling legislation; these are pre-sented as restricted net assets.

Unrestricted net assets consist of net assets that do not meet the definition of restricted net assets. The Members of theBoard may internally designated unrestricted net assets for specific loan programs to meet the business needs of theAgency. Those are presented as “designated” net assets within the unrestricted balances. Equally, Members of the Boardmay remove or modify such designations. See Note K for further discussion.

• Net assets of the General Fund decreased by approximately $34 million to $124 million at June 30, 2007 from $158million at June 30, 2006. The unrestricted portion of net assets that may be used to finance operations decreased byapproximately $33 million to $109 million at June 30, 2007 from $142 million at June 30, 2006. Net assets decreasedby $13 million or 7.8%, to $158 million at June 30, 2006 from $171 million at June 30, 2005.

• Net assets of the Multifamily Program increased by approximately $23 million to $263 million at June 30, 2007 from$240 million at June 30, 2006. The unrestricted portion of net assets that may be used to finance operations increasedby approximately $23 million to $261 million at June 30, 2007 from $238 million at June 30, 2006. Net assetsincreased by $16 million or 7.1%, to $240 million at June 30, 2006 from $224 million at June 30, 2005. The unre-stricted portion of net assets that may be used to finance operations increased to $238 million at June 30, 2006 from$216 million at June 30, 2005.

• Net assets of the Single Family Program increased by approximately $51 million to $235 million at June 30, 2007 from$184 million at June 30, 2006. The unrestricted portion of net assets that may be used to finance operations increasedby approximately $59 million to $154 million at June 30, 2007 from $95 million at June 30, 2006. Net assetsincreased by $13 million or about 7.6%, to $184 million at June 30, 2006 from $171 million at June 30, 2005. Theunrestricted portion of net assets that may be used to finance operations increased to $95 million at June 30, 2006from $91 million at June 30, 2005.

• Net assets of the Insurance Fund increased by approximately $3 million to $45 million at June 30, 2007 from $42million at June 30, 2006. Net assets decreased approximately $1 million to $42 million from $43 million at June 30,2006 and 2005, respectively.

• Net assets of HEMAP remained constant at $44 million at June 30, 2007 and June 30, 2006, respectively. The unre-stricted portion remained constant at $44 million at June 30, 2007 and 2006. Net assets increased by $3 million orabout 7.3%, to $44 million at June 30, 2006 from $41 million at June 30, 2005.

Economic Factors and Other Financial InformationThe primary business activity of the Agency is providing a secondary market for the purchase of single-family and multi -family mortgage loans. The Agency’s mortgage financing activities are sensitive to changes in interest rates, the spreadbetween the rate on the Agency’s loans and those available in the conventional mortgage markets and the availability ofaffordable housing in the Commonwealth. The availability of long-term tax-exempt financing on favorable terms is a keyelement in providing the funding necessary for the Agency to continue its mortgage financing activities.

The Agency’s main sources of revenues include mortgage loan activity, investment interest income and externally fund-ed grants and subsidies. Interest rates have an effect on both the mortgage programs and investment income revenues.If interest rates continue at current levels, the Agency expects mortgage and investment income to remain relatively sta-ble. If interest rates rise, mortgage and investment income should increase as new loans are originated and new invest-ments are purchased at the higher rates. If interest rates fall, mortgage and investment income will decrease as new loansare originated and new investments are purchased at the lower rates. Any decrease in interest rates may also cause anincrease in prepayments on higher rate mortgages. The Agency uses many of these prepayments to call the correspon-ding bond series, which lowers the interest expense incurred on the Agency’s overall bonds outstanding, or to recyclemortgages to obtain the maximum allowable spread. Large federal deficits or changes in programs or funding levelscould have a negative impact on externally funded program revenues.

Capital Related ActivitiesDuring the year ended June 30, 2007, the Agency purchased an adjacent property to its Harrisburg, Pennsylvania head-quarters. The acquisition will permit the Agency to expand its headquarters in future years, if desired. Acquisition costsof $774 thousand have been included in the capital assets footnote as additions to land and building. The Agency didnot have any substantial capital related activity during the years ended June 30, 2006 and 2005.

20 21

BASIC FINANCIAL STATEMENTS

2007 2006

General Multifamily Single Family Insurance General Multifamily Single Family InsuranceFund Program Program Fund Subtotal HEMAP Totals Fund Program Program Fund Subtotal HEMAP Totals

AssetsCurrent Assets:

Cash and cash equivalents (Note C) $ 14,965 $ 273,987 $ 427,526 $ 32,692 $ 749,170 $ – $ 749,170 $ 31,728 $ 184,620 $ 346,822 $ 29,624 $ 592,794 $ 541 $ 593,335

Investments (Note C) 9,244 2,218 23,652 – 35,114 – 35,114 9,726 24,834 90,042 12,524 137,126 – 137,126

Accrued interest receivable on investments 503 655 3,357 131 4,646 – 4,646 1,112 3,414 10,328 104 14,958 – 14,958

Mortgage loans receivable (Note D) – 27,507 57,271 – 84,778 6,335 91,113 – 23,266 40,610 – 63,876 6,285 70,161

Advances to other funds 24,073 – – – 24,073 – 24,073 43,831 – – – 43,831 (654) 43,177

Total current assets 48,785 304,367 511,806 32,823 897,781 6,335 904,116 86,397 236,134 487,802 42,252 852,585 6,172 858,757

Noncurrent assets: –

Restricted cash and cash equivalents (Note C) – 1,960 81,100 – 83,060 – 83,060 – 1,960 88,166 – 90,126 – 90,126

Investments (Note C) 63,030 48,129 154,476 13,054 278,689 – 278,689 56,439 106,570 10,884 – 173,893 – 173,893

Mortgage loans receivable (Note D) – 522,433 3,203,719 – 3,726,152 41,949 3,768,101 – 523,584 2,733,279 – 3,256,863 41,382 3,298,245

Capital assets, net (Note E) 35,377 – – – 35,377 34 35,411 35,406 – – – 35,406 28 35,434

Deferred assets 2,280 10,091 5,466 – 17,837 6 17,843 3,645 10,174 4,519 – 18,338 6 18,344

Total noncurrent assets 100,687 582,613 3,444,761 13,054 4,141,115 41,989 4,183,104 95,490 642,288 2,836,848 – 3,574,626 41,416 3,616,042

Total assets $ 149,472 $ 886,980 $ 3,956,567 $ 45,877 $ 5,038,896 $ 48,324 $ 5,087,220 $ 181,887 $ 878,422 $ 3,324,650 $ 42,252 $ 4,427,211 $ 47,588 $ 4,474,799

LiabilitiesCurrent liabilities:

Bonds payable (Note G) $ – $ 27,238 $ 137,455 $ – $ 164,693 $ – $ 164,693 $ – $ 26,368 $ 144,665 $ – $ 171,033 $ – $ 171,033

Accrued interest payable (Note G) 392 6,253 37,648 – 44,293 – 44,293 390 6,927 29,599 – 36,916 – 36,916

Accounts payable and accrued expenses 3,222 11 899 258 4,390 780 5,170 3,534 11 873 213 4,631 472 5,103

Advances from other funds – 2,366 20,398 – 22,764 1,309 24,073 – 2,611 40,566 – 43,177 – 43,177

Total current liabilities 3,614 35,868 196,400 258 236,140 2,089 238,229 3,924 35,917 215,703 213 255,757 472 256,229

Noncurrent liabilities:

Bonds payable (Note G) 19,921 324,207 3,467,735 – 3,811,863 – 3,811,863 19,918 349,043 2,871,134 – 3,240,095 – 3,240,095

Escrow and other noncurrent liabilities 1,791 263,475 57,040 610 322,916 2,475 325,391 304 253,038 54,168 502 308,012 2,714 310,726

Total noncurrent liabilities 21,712 587,682 3,524,775 610 4,134,779 2,475 4,137,254 20,222 602,081 2,925,302 502 3,548,107 2,714 3,550,821

Total liabilities 25,326 623,550 3,721,175 868 4,370,919 4,564 4,375,483 24,146 637,998 3,141,005 715 3,803,864 3,186 3,807,050

Net AssetsInvested in capital assets, net of related debt 15,456 – – – 15,456 – 15,456 15,488 – – – 15,488 – 15,488

Restricted by debt covenants – 1,960 81,100 – 83,060 – 83,060 – 1,960 88,166 – 90,126 – 90,126

Unrestricted 108,690 261,470 154,292 45,009 569,461 43,760 613,221 142,253 238,464 95,479 41,537 517,733 44,402 562,135

Total net assets 124,146 263,430 235,392 45,009 667,977 43,760 711,737 157,741 240,424 183,645 41,537 623,347 44,402 667,749

Total liabilities and net assets $ 149,472 $ 886,980 $ 3,956,567 $ 45,877 $ 5,038,896 $ 48,324 $ 5,087,220 $ 181,887 $ 878,422 $ 3,324,650 $ 42,252 $ 4,427,211 $ 47,588 $ 4,474,799

The accompanying notes are an integral part of these financial statements.


B A L A N C E S H E E T S June 30, 2007 and 2006(in thousands of dollars)

22 23


2007 2006


Operating revenues:Interest on mortgage loans $ – $ 35,484 $ 144,986 $ – $ 180,470 $ 975 $ 181,445 $ – $ 37,120 $ 120,120 $ – $ 157,240 $ 941 $ 158,181

Fee income 27,122 38 2,454 451 30,065 351 30,416 22,574 451 2,564 616 26,205 388 26,593

Investment income 4,002 5,220 26,690 1,049 36,961 149 37,110 1,920 5,576 23,405 1,294 32,195 85 32,280

Net increase (decrease) in fair value of investments 202 3,536 1,118 2,372 7,228 – 7,228 (4,829) (6,162) (2,064) (2,901) (15,956) – (15,956)

Federal program awards – 311,745 – – 311,745 – 311,745 – 289,228 – – 289,228 – 289,228

Other Income – 1,501 – – 1,501 10,000 11,501 – 1,708 – – 1,708 11,590 13,298

Total operating revenue (loss) 31,326 357,524 175,248 3,872 567,970 11,475 579,445 19,665 327,921 144,025 (991) 490,620 13,004 503,624

Operating expenses:Interest on bonds 825 14,854 156,738 – 172,417 – 172,417 823 18,037 132,881 – 151,741 – 151,741

Salaries and related benefits 18,371 – – – 18,371 2,300 20,671 18,162 – – – 18,162 2,342 20,504

General and administrative 5,367 2,130 4,830 400 12,727 2,106 14,833 6,273 2,796 4,440 600 14,109 2,010 16,119

Provision for loan loss – 6,200 1,600 – 7,800 7,711 15,511 – 1,000 2,000 – 3,000 5,064 8,064

Federal program awards expense – 311,745 – – 311,745 – 311,745 – 289,228 – – 289,228 – 289,228

Total operating expenses 24,563 334,929 163,168 400 523,060 12,117 535,177 25,258 311,061 139,321 600 476,240 9,416 485,656

Net operating income (loss) 6,763 22,595 12,080 3,472 44,910 (642) 44,268 (5,593) 16,860 4,704 (1,591) 14,380 3,588 17,96

Nonoperating expenses:Loss on early extinguishment of debt – (132) (148) – (280) – (280) – (124) (220) – (344) – (344)

Income (loss) before transfers 6,763 22,463 11,932 3,472 44,630 (642) 43,988 (5,593) 16,736 4,484 (1,591) 14,036 3,588 17,624

Transfers:Interfund transfers in (out) (40,358) 543 39,815 – – – – (7,746) 29 7,717 – – – –

Increase (decrease) in net assets (33,595) 23,006 51,747 3,472 44,630 (642) 43,988 (13,339) 16,765 12,201 (1,591) 14,036 3,588 17,624

Total net assets — beginning of year 157,741 240,424 183,645 41,537 623,347 44,402 667,749 171,080 223,659 171,444 43,128 609,311 40,814 650,125

Total net assets — end of year $ 124,146 $ 263,430 $ 235,392 $ 45,009 $ 667,977 $ 43,760 $ 711,737 $ 157,741 $ 240,424 $ 183,645 $ 41,537 $ 623,347 $ 44,402 $ 667,749



S TAT E M E N T S O F R E V E N U E S , E X P E N S E S A N D C H A N G E S I N N E T A S S E T SYears Ended June 30, 2007 and 2006(in thousands of dollars)

24 25


2007 2006


Cash flows from operating activitiesCash disbursed on mortgage loans $ – $ (42,862) $ (727,863) $ – $ (770,725) $ (22,851) $ (793,576) $ – $ (38,149) $ (606,802) $ – $ (644,951) $ (22,448) $ (667,399)

Cash received on mortgage loans – 39,772 240,762 – 280,534 22,199 302,733 – 24,028 243,520 – 267,548 15,518 283,066

Interest received on mortgages and other loans – 38,243 151,957 – 190,200 975 191,175 – 40,630 131,175 – 171,805 868 172,673

Cash received from fees and charges 27,122 1,539 2,454 451 31,566 351 31,917 25,020 – – 616 25,636 388 26,024

Cash paid to employees and vendors (20,743) (8,247) (7,351) (275) (36,616) (12,003) (48,619) (24,091) (3,130) (315) (210) (27,746) (4,315) (32,061)

Cash received for escrow and other liabilities 1,487 10,437 2,872 1 14,797 – 14,797 – 11,640 5,324 – 16,964 91 17,055

Cash received from other government sources – – – – – 10,000 10,000 – – – – – 11,590 11,590

Net cash provided by (used in) operating activities 7,866 38,882 (337,169) 177 (290,244) (1,329) (291,573) 929 35,019 (227,098) 406 (190,744) 1,692 (189,052)

Cash flows from noncapital financing activitiesTransfers (to) from other funds (20,600) 298 19,647 – (655) 655 – (23,203) 719 23,720 – 1,236 (1,236) –

Proceeds from sale of bonds – 12,600 916,935 – 929,535 – 929,535 – 22,010 529,815 – 551,825 – 551,825

Principal payments on bonds – (36,698) (327,692) – (364,390) – (364,390) – (39,261) (347,768) – (387,029) – (387,029)

Interest paid on bonds – (15,528) (148,689) – (164,217) – (164,217) – (18,447) (130,728) – (149,175) – (149,175)

Net cash provided by (used in) noncapital financing activities (20,600) (39,328) 460,201 – 400,273 655 400,928 (23,203) (34,979) 75,039 – 16,857 (1,236) 15,621

Cash flows from capital financing activitiesInterest on capital asset debt (820) – – – (820) – (820) (823) – – – (823) – (823)

Purchases of capital assets (1,304) – – – (1,304) (16) (1,320) – – – – – – –

Net cash provided by (used in) capital financing activities (2,124) – – – (2,124) (16) (2,140) (823) – – – (823) – (823)

Cash flows from investing activitiesPurchase of investments (33,999) (63,896) (1,725,327) – (1,823,222) – (1,823,222) (14,591) (3,563) (6,392) – (24,546) – (24,546)

Proceeds from sales and maturities of investments 28,092 148,489 1,649,243 1,842 1,827,666 – 1,827,666 8,861 17,600 7,074 – 33,535 – 33,535

Investment income 4,002 5,220 26,690 1,049 36,961 149 37,110 1,920 5,576 23,405 1,175 32,076 85 32,161

Net cash provided by (used in) investing activities (1,905) 89,813 (49,394) 2,891 41,405 149 41,554 (3,810) 19,613 24,087 1,175 41,065 85 41,150

Net increase (decrease) in cash and cash equivalents (16,763) 89,367 73,638 3,068 149,310 (541) 148,769 (26,907) 19,653 (127,972) 1,581 (133,645) 541 (133,104)

Cash and cash equivalents, beginning of year 31,728 186,580 434,988 29,624 682,920 541 683,461 58,635 166,927 562,960 28,043 816,565 – 816,565

Cash and cash equivalents, end of year $ 14,965 $ 275,947 $ 508,626 $ 32,692 $ 832,230 $ – $ 832,230 $ 31,728 $ 186,580 $ 434,988 $ 29,624 $ 682,920 $ 541 $ 683,461



S TAT E M E N T S O F C A S H F L OW SYears Ended June 30, 2007 and 2006(in thousands of dollars)

26 27


2007 2006


Reconciliation of operating income (loss) to net cash provided by (used in) operating activities:

Net operating income (loss) $ 6,763 $ 22,595 $ 12,080 $ 3,472 $ 44,910 $(642) $44,268 $(5,593) $16,860 $4,704 $(1,591) $14,380 $3,588 $17,968

Depreciation, amortization and accretion 1,333 – – – 1,333 10 1,343 (1) 176 10,075 – 10,250 11 10,261


Interest expense on bonds 825 14,854 156,738 – 172,417 – 172,417 – 18,037 132,881 – 150,918 – 150,918

Investment income (4,002) (5,220) (26,690) (1,049) (36,961) (149) (37,110) (1,920) (5,576) (23,405) (1,294) (32,195) (85) (32,280)

Amortization of deferred gain – – – – – – – – 946 – – 946 – 946

Net (increase) decrease in fair value of investments (202) (3,536) (1,118) (2,372) (7,228) – (7,228) 4,829 6,162 2,064 2,901 15,956 – 15,956

Changes in assets and liabilities: – – – –

Mortgage loans receivable, net – (9,290) (488,701) – (497,991) (8,363) (506,354) – (14,121) (363,282) – (377,403) (7,015) (384,418)

Accrued interest receivable on investments 609 2,759 6,971 (27) 10,312 35 10,347 793 919 2,899 119 4,730 – 4,730

Deferred and other assets 1,365 83 (947) 1 502 43 545 434 (1,024) (673) – (1,263) 1 (1,262)

Accounts payable and accrued expenses (312) – 2,872 152 2,712 26 2,738 2,403 – 315 270 2,988 37 3,025

Escrow and other liabilities 1,487 10,437 26 – 11,950 – 11,950 (16) 11,640 5,324 1 16,949 91 17,040

Net cash provided by (used in) operating activities $ 7,866 $ 38,882 $ (337,169) $ 177 $ (290,244) $ (1,329) $ (291,573) $929 $35,019 $(227,098) $406 $(190,744) $1,692 $(189,052)



S TAT E M E N T S O F C A S H F L OW S , C O N T I N U E DYears Ended June 30, 2007 and 2006(in thousands of dollars)

28 29

3130

NOTES TO FINANCIAL STATEMENTSJune 30, 2007 and 2006(in thousands of dollars)

A. Description of the AgencyThe Pennsylvania Housing Finance Agency (“Agency”) is a corporate and political body created by the HousingFinance Agency Law, Act of December 3, 1959, P.L. 1688 (“Act”), as amended. Pursuant to the Act, the Agency isauthorized and empowered, among other things, to finance the construction and rehabilitation of housing units forpersons and families of low and moderate income or the elderly. Bonds issued under the provisions of the Act arenot a debt or liability of the Commonwealth of Pennsylvania or any of its political subdivisions or a pledge of thefaith and credit of the Commonwealth of Pennsylvania or of any of its political subdivisions.

The Act was amended to authorize the Agency to make or purchase loans to finance the purchase, construction,improvement or rehabilitation of owner-occupied single-family residences, and to finance the construction and reha-bilitation of housing units without requiring the housing units to be subsidized or assisted by a federal governmentprogram.

B. Summary of Significant Accounting Policies

Basis of AccountingThe financial statements of the Agency are reported using the economic resources measurement focus and the accru-al basis of accounting. Revenues are recorded when earned, regardless of when the cash flow takes place. Operatingcosts and expenses are charged to expense as incurred, except those directly related to mortgage loan or programoriginations, which are deferred, netted against fee income for mortgage loans originated, and amortized over thecontractual life of the related mortgage loan or program.

The Agency is required to follow all statements of the Governmental Accounting Standards Board. GovernmentalAccounting Standards Board Statement No. 20, Accounting and Reporting for Proprietary Funds and OtherGovernmental Entities that Use Proprietary Fund Accounting, was issued to give guidance in determining GenerallyAccepted Accounting Principles for governmental proprietary funds. It provides that all proprietary fund activitiesfollow all Financial Accounting Standards Board Statements issued prior to November 30, 1989, unless they conflictwith Governmental Accounting Standards Board pronouncements. It also provides that the governmental unit mustelect whether to follow FASB Statements after that date.

The Agency has elected not to follow any Financial Accounting Statement Board pronouncements issued afterNovember 30, 1989.

Reporting EntityThe Agency is a component unit of the Commonwealth of Pennsylvania as described in Governmental AccountingStandards Board Statement No. 14, as amended by Governmental Accounting Standards Board Statement No 39,“Determining whether Certain Organizations are Component Units.” These financial statements are discretely present-ed as part of the Commonwealth’s financial statements.

Description of FundsThe accounts of the Agency are organized on the basis of separate enterprise funds, each of which is considered aseparate accounting entity with a separate set of self-balancing accounts that comprise assets, liabilities, net assetsand revenues and expenses. Within each fund, there are accounts required by the respective bond resolutions.Certain assets under the respective bond resolutions are restricted and are not available for any other purpose otherthan as provided.

General Fund— The General Fund is utilized to record certain loan origination fees, service fees and revenuefrom investments not specifically pledged for the repayment of bonds in the other funds. All Agency expensesare recorded in this fund except provisions for potential loan losses and specific program expenses that arecharged to the loan-related program funds.

Multifamily Program— The Multifamily Program transactions relate to the construction, rehabilitation and per-manent financing of multifamily rental housing developments generally designed for persons and families oflow and moderate income or the elderly.

Single Family Program— The Single Family Program transactions relate to the purchase of mortgage loans forowner-occupied single-family residences for persons and families of low and moderate income.

Insurance Fund— Through the Insurance Fund, the Agency provides primary mortgage insurance coverage forsingle-family mortgage loan participants that are unable to obtain insurance from other sources.

HEMAP— The Homeowners Emergency Mortgage Assistance Program (“HEMAP”) was created by Act 91 of theGeneral Assembly. HEMAP provides emergency mortgage assistance loans to mortgagors facing foreclosurebecause of circumstances beyond their control.

Cash and Cash EquivalentsCash includes cash on hand and cash deposits. For the purpose of the statements of cash flows, cash equivalentsconsist of investments with maturity of three months or less when acquired.

InvestmentsIn accordance with Governmental Accounting Standards Board Statement No. 31, “Accounting and FinancialReporting for Certain Investments and External Investment Pools,” investments are reported at fair market value on thebalance sheet, with changes in fair market value recognized in investment income in the statement of revenues,expenses, and changes in net assets. Fair value of investment securities is determined upon values provided by quot-ed market prices and external investment managers.

Pass-through GrantsThe Agency follows Governmental Accounting Standards Board Statement No. 24, Accounting and FinancialReporting for Certain Grants and Other Financial Assistance. Statement No. 24 requires that all cash pass-throughgrants received by a governmental entity be reported in its financial statements. The effect of applying these provi-sions is to increase both operating income and expense when eligible expenditures occur.

Pension PlanThe Agency follows Governmental Accounting Standards Board Statement No. 27, Accounting for Pensions by Stateand Local Governmental Employers, which requires the Agency to measure and disclose an amount for annual pen-sion cost and net pension obligation.

Derivative Financial InstrumentsThe Agency enters into various interest rate swap agreements in order to manage risk associated with interest on itsbond portfolio. As currently allowed under accounting principals generally accepted in the United States, the Agencydoes not record the fair value or changes in the fair value of interest rate swaps in its financial statements. See NoteH for relevant disclosures.

Net AssetsInvested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reducedby the outstanding balances of any bonds or other borrowings that are attributable to the acquisition, constructionor improvement of those assets.

Restricted net assets represent those portions of the total net assets that are restricted when constraints placed onnet assets use have been either (1) externally imposed by creditors, grantors or laws and regulations of other gov-ernments or (2) are imposed by law through constitutional provisions or enabling legislation

Unrestricted net assets represent those portions of the total net assets set aside to reflect current unitization and ten-tative plans for future operational utilization of such net assets. The Board of Directors of the Agency may internal-ly designate these assets for specific loan programs and to meet the business needs of the Agency.

When both restricted and unrestricted resources are available in a fund, it is the Agency’s policy to spend restrictedresources to the extent allowed and only spend unrestricted resources when needed.

Allowance for Potential Loan LossesThe allowance for loan losses is determined based upon management’s evaluation of mortgage loans receivable andconstruction advances. Factors considered by management include the estimated fair market values of the proper-ties that represent collateral, the amount of mortgage insurance to be received, if any, the past experience and finan-cial condition of the borrowers, and the economy. While management uses available information to recognize loss-es on loans, future additions to the allowance may be necessary based on changes in economic conditions. Additionsto the allowance are provided by charges to expense.

Interest IncomeInterest income is recognized over the remaining time to maturity of investment securities, mortgage loans receiv-able and construction advances based upon the constant yield method. Multifamily and Single Family Programloans more than 180 days delinquent in scheduled payments are considered nonperforming loans which result inthe cessation of recognition of additional interest on such loans.

Operating and Nonoperating Revenues and ExpensesThe Agency was created with the authority to issue bonds to the investing public in order to create a flow of capitalthrough the Agency into mortgage loans to qualified housing sponsors and to certain individuals. The Agency’s pri-mary purpose is to borrow funds in the bond market and to use those funds to make single-family and multifamilymortgages and loans. Its primary operating revenue is derived from the interest income and fees from those mort-gages and loans and on the invested proceeds from the bond issues. The Agency records all revenues from mort-gages and loans, investments, and externally funded programs as operating revenues. The primary operatingexpenses are from the interest expenses on outstanding debt. The costs of providing mortgages and loans are record-ed as operating expenses. Nonoperating revenue and expenses are those that do not contribute directly to theAgency’s primary purpose.

Debt Issuance Costs, Bond Discounts and Other Bond Related CostsThe Agency issues bonds to provide capital for its mortgage programs and other uses consistent with its mission.Bonds are recorded at cost plus accreted interest and premiums, less discounts and deferred debt refunding losses.Discounts and premiums are amortized using the effective interest method. Deferred debt refunding losses are amor-tized over the shorter of the remaining life of the old debt, or the remaining life of the new debt. The Agency capi-talizes costs related to bond issuances to deferred assets and amortizes these costs to interest expense over the con-tractual life of the bonds using the effective interest method.

Advances To and From Other Funds and Interfund TransfersTo meet liquidity requirements of individual funds, the Agency transfers funds to and from the separate enterprisefunds. The Agency is permitted to make interfund transfers to the extent that such transfers are not required to meetthe Agency’s debt obligations and provided that such transfers are not in violation of the terms of bond resolutionsor indentures.

Mortgage Loans ReceivableMortgage loans receivable are carried at amounts disbursed or advanced plus accrued interest and fees, less collec-tions, mortgage loan discounts and allowance for loan losses, if any. The current portion of loans receivable repre-sents the contractual amount due within the next year.

Real Estate OwnedDuring the normal course of business, the Agency acquires single-family real estate through foreclosure. Real estateowned is stated at the lower of cost or estimated net realizable value and is included in mortgage loans receivableon the balance sheet.

Capital Assets Building, furniture and equipment are capitalized at costs and depreciation is provided on the straight-line basis overthe estimated useful lives, which are thirty years for the building and from three to ten years for furniture and equip-ment. The capitalization floor is $1 for all categories of capital assets. Expenses for maintenance and repairs arecharged to operating expenses.

Compensated Absences Agency employees are granted vacation and illness pay in varying amounts as services are provided. Employees mayaccumulate, subject to certain limitations, unused vacation and illness pay earned and, upon retirement, termina-tion or death, may be compensated for certain amounts at their current rate of pay. Vacation and illness pay is rec-ognized as an expense in the amount earned each year.


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Implemented and Pending Governmental Accounting Standards Board PronouncementsGovernmental Accounting Standards Board Statement No. 45, “Accounting and Financial Reporting by Employers forPostemployment Benefits Other Than Pension.” This statement establishes standards for the measurement, recognitionand display of OPEB expense/expenditures and related liabilities (assets) and note disclosures in the financialreports of state and local governmental employers. This statement will be effective for the year ended June 30, 2008.The Agency is currently evaluating the impact of implementing Statement No. 45 on its financial statements.

Governmental Accounting Standards Board Statement No. 46, “Net Assets Restricted by Legislation.” This Statementclarifies that a legally enforceable enabling legislation restriction is one that a party external to a government—suchas citizens, public interest groups, or the judiciary—can compel a government to honor. The Statement states thatthe legal enforceability of an enabling legislation restriction should be reevaluated if any of the resources raised bythe enabling legislation are used for a purpose not specified by the enabling legislation or if a government has othercause for reconsideration. Although the determination that a particular restriction is not legally enforceable maycause a government to review the enforceability of other restrictions, it should not necessarily lead a government tothe same conclusion for all enabling legislation restrictions. This Statement also specifies the accounting and finan-cial reporting requirements if new enabling legislation replaces existing enabling legislation or if legal enforceabilityis reevaluated. Finally, this Statement requires governments to disclose the portion of total net assets that is restrict-ed by enabling legislation. The Agency has adopted Statement No. 46 for its June 30, 2007 financial statements.Statement No. 46 did not have an effect on the Agency’s financials statements for the year ended June 30, 2007.

Governmental Accounting Standards Board Statement No. 47, “Accounting for Termination Benefits.” This Statementestablishes accounting standards for termination benefits, and requires employers to disclose a description of thetermination benefit arrangement, the cost of the termination benefits (required in the period in which the employ-er becomes obligated if that information is not otherwise identifiable from information displayed on the face of thefinancial statements), and significant methods and assumptions used to determine termination benefit liabilities.The Agency provides termination benefits through an existing defined benefit OPEB plan. As a result, the provisionsof this Statement will be implemented simultaneously with the requirements of Statement 45. The Agency is cur-rently evaluating the impact of implementing Statement No. 47 on its financial statements.

Governmental Accounting Standards Board Statement No. 48, “Sales and Pledges of Receivables and Future Revenuesand Intra-Entity Transfers of Assets and Future Revenues Accounting for Termination Benefits.” Historically, guidance forreporting the effects of those transactions in governmental financial statements either has been provided in severalstandards or, in certain cases, was not specifically addressed in authoritative literature. In addition, little or no infor-mation about pledged revenues was being disclosed in the notes to the financial statements. This Statement estab-lishes criteria that governments will use to ascertain whether the proceeds received should be reported as revenueor as a liability. This Statement also provides additional guidance for sales of receivables and future revenues withinthe same financial reporting entity. This Statement is effective for the Agency’s June 30, 2008 financial statements.The Agency is currently evaluating the impact of implementing Statement No. 48 on its financial statements.

Governmental Accounting Standards Board Statement No. 50, “Pension Disclosures—an amendment of GovernmentAccounting Standards Board Statements No. 25 and No. 27.” This Statement more closely aligns the financial reportingrequirements for pensions with those for other postemployment benefits (OPEB) and, in doing so, enhances infor-mation disclosed in notes to financial statements or presented as required supplementary information (RSI) by pen-sion plans and by employers that provide pension benefits. This Statement is effective for the Agency’s June 30, 2008financial statements. The Agency is currently evaluating the impact of implementing Statement No. 50 on its finan-cial statements.

ReclassificationsCertain reclassifications have been made in the June 30, 2006 financial statements to conform to the June 30, 2007presentation.

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C. Deposits and Investments

DepositsThe Agency has a policy that deposits must be held in insured depositories satisfactory to the Agency and must befully collateralized. Cash and cash equivalents consist of demand deposits, time deposits, cash held in trust andshort-term investments. A summary of the Agency’s cash and equivalents is shown below:

June 30, June 30,2007 2006

Restricted cash and cash equivalents $ 83,060 $ 90,126 Unrestricted cash and cash equivalents 749,170 593,335 Carrying amount of cash and cash equivalents $ 832,230 $ 683,461 Bank balance of cash and cash equivalents $ 830,612 $ 783,309

Note: Restricted cash and cash equivalents represent the amount of cash deposits restricted by bond resolutions.

Custodial Credit RiskThe Agency assumes levels of custodial credit risk for its deposits with financial institutions. Custodial credit risk isthe risk that, in the event of a bank failure, the Agency’s deposits may not be returned. The Agency has not estab-lished a formal custodial credit risk policy for its deposits.

Of the Agency’s $830,612 bank balance at June 30, 2007, cash deposits in the amount of $830,219 were uninsuredand collateralized, in accordance with Act 72 of the Commonwealth of Pennsylvania, with securities held by thepledging financial institution, its trust department or agent, but not in the Agency's name.

InvestmentsThe investment policies of the Agency are governed by Commonwealth statutes and contractual provisions con-tained in the bond trust indentures. As of June 30, 2007, the Agency held the following investments with the listedmaturities and ratings by Moody’s Investors Service:

Investment Maturities (in years)

Investment Type/Rating Fair Less MoreValue than 1 1–5 6–10 than 10

U.S. Government Agency Securities* $ 263,164 $ 30,898 $ 202,460 $ 451 $ 29,355 U.S. Treasury Securities* 25,375 – 53 22,659 2,663 Corporate bonds/Aaa 1,940 – – 1,940 – Corporate bonds/Aa 11,153 1,899 5,887 1,882 1,485 Corporate bonds/A 2,317 2,317 – – – Corporate bonds/Baa 7,924 – 5,181 2,743 – Corporate bonds** 1,930 - 1,930 - -

$ 313,803 $ 35,114 $ 215,511 $ 29,675 $ 33,503

* U.S. Government and Treasury securities have an implied rating of Aaa as they are not subject to credit risk.**Securities that are not rated.

Interest Rate RiskThe Agency’s investment policy does not limit investment maturities as a means of managing its exposure to fairvalue losses arising from increasing interest rates. The Agency has elected to use the segmented time distributionmethod of disclosure for its interest rate risk.

Credit RiskCredit risk is the risk of loss due to the failure of the security or backer. The Agency mitigates its credit risk by lim-iting investments to those permitted in the deposit and investment policies, diversifying the investment portfolioand pre-qualifying firms with which the Agency administers its investment activities. The credit quality ratings of theAgency’s investments as of June 30, 2007, as described by nationally recognized statistical rating organizations, are


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shown in the table above. U.S. Government and Treasury securities that are explicitly guaranteed by the U.S. gov-ernment in the amount of $288,539 are not considered to have credit risk.

Concentration of Credit RiskConcentration risk is the risk of loss attributed to the magnitude of the Agency’s investment in a single issuer.Concentration limits are not established in the bond indentures and governing agreements for trust investments.The Agency has not established a formal concentration of credit risk policy for the concentration of credit risk.

Custodial Credit RiskFor investments, custodial credit risk is the risk that, in the event of failure of the custodian or counterparty holdingthe investment, the Agency will not be able to recover the value of the investment. The Agency has not establisheda formal custodial credit risk policy for its investments.

Of the Agency’s $313,803 investment balance at June 30, 2007, investments in the amount of $25,264 were held bybank trust departments in book entry only form in the Agency’s name and accordingly were subject to custodialcredit risk.

Foreign Currency RiskForeign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investmentor a deposit. The Agency does not hold foreign currency investments and therefore is not subject to foreign curren-cy risk.

D. Mortgage Loans ReceivableA summary of mortgage loans receivable at June 30, 2007 and 2006 consisted of the following:

June 30, June 30,2007 2006

Multifamily mortgage loans $ 714,585 $ 705,606 Single-family mortgage loans 3,240,913 2,757,438HEMAP loans 86,988 85,090

4,042,486 3,548,134 Add: Loan discounts 21,515 17,209

Less:Allowance for potential loan losses 204,787 196,937 Mortgage receivable, net 3,859,214 3,368,406 Less current portion 91,113 70,161Long-term portion $ 3,768,101 $ 3,298,245

Multifamily mortgage loans receivable are collateralized by first mortgages on the related properties. The federal gov-ernment provides insurance for certain developments included in the Multifamily programs, as well as subsidizescertain developments through its Section 8 Program. Construction advances are recorded as mortgage loans receiv-able. Upon substantial completion and occupancy of the development, the amortization of the advances com-mences.

Insurance for the Single Family Program is provided by commercial companies and self-insurance through theAgency’s Insurance Fund. Primary insurance is required on all single-family mortgage loans where the loan princi-pal amount exceeds 80% of the lesser of the purchase price or the initial appraised value of the property. It is theeligible borrowers’ responsibility to bear the cost of primary insurance.

The Agency provides primary mortgage insurance coverage for single-family mortgage loans through the InsuranceFund, which ranges from 20% to 30% (depending on the loan-to-value ratio at origination) of the unpaid principalbalance. At June 30, 2007 and 2006, the total loans covered under this program were $65,742 and $84,953, respec-tively. The Agency discontinued originating mortgage loans under these agreements in September 1993.Additionally, the Agency has internally designated certain net assets for self-insurance for certain multifamily andsingle-family loans (see Note K.) HEMAP loans are uninsured and unsecured due to their lien position.

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Changes in the Insurance Fund’s claim liability amounts are as follows: June 30, June 30,2007 2006

Beginning Balance $ 709 $ 439 Current year estimated claims payable 400 600 Claim payments (248) (330)Total claim liability 861 709 Less current portion 258 213 Long-term portion $ 603 $ 496

The claims liability is based on the requirements of the Governmental Accounting Standards Board, which requiresthat the basis for estimating the liability for unpaid claims, including the effects of specific incremental claim adjust-ment expenditures/expenses, salvage, and subrogation and whether other allocated or unallocated claim adjustmentexpenditures/expenses are included.

Changes in the allowance for potential loan losses for the Multifamily Program, Single Family Program and HEMAPare as follows at June 30, 2007 and 2006:

Multifamily Single Family HEMAP Totals

2007 2006 2007 2006 2007 2006 2007 2006

Beginning Balance $155,979 $156,223 $ 3,433 $ 2,510 $ 37,525 $ 40,079 $196,937 $198,812Provision chargedto income 6,200 1,000 1,600 2,000 7,711 5,064 15,511 8,064Charge-offs, net of recoveries (361) (1,244) (768) (1,077) (6,532) (7,618) (7,661) (9,939)Balance, June 30 $161,818 $155,979 $ 4,265 $ 3,433 $ 38,704 $ 37,525 $204,787 $196,937

E. Capital AssetsCapital assets activity for the year ended June 30, 2007:

Beginning EndingBalance Balance

July 1, 2006 Additions Deletions June 30, 2007

Non depreciable capital assets:Land $ 2,060 $ 394 $ – $ 2,454

Total non depreciable capital assets 2,060 394 – 2,454 Depreciable capital assets:Building and Improvements 29,075 588 16 29,647 Computers and Equipment 5,269 220 37 5,452 Furniture and Fixtures 4,278 119 121 4,276 Automobiles 61 68 3 126

Total depreciable capital assets 38,683 995 177 39,501 Less accumulated depreciation:Building and Improvements 1,901 622 – 2,523 Computers and Equipment 2,758 452 36 3,174 Furniture and Fixtures 611 263 72 802 Automobiles 39 6 – 45

Total accumulated depreciation: 5,309 1,343 108 6,544 Total depreciable capital assets, net 33,374 (348) 69 32,957 Capital Assets, net $ 35,434 $ 46 $ 69 $ 35,411

Depreciation expense for the years ended June 30, 2007 and 2006 totaled $1,343 and $1,392, respectively.


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F. Servicing PortfolioIncluded in the Single Family Program are mortgage loans serviced for investors, which are not included within theAgency’s Balance Sheet. The total amount of loans serviced for others under sub-servicing agreements is $137,662and $124,951 at June 30, 2007 and 2006, respectively. The Agency has a limited exposure for losses within this serv-iced portfolio.

G. Bonds PayableBonds issued to provide capital for mortgage programs and other uses have the full faith and credit of the Agencypledged for repayment of the bonds issued. The bonds are secured, as described in the applicable agreements by therevenues, investments, mortgage loans and others assets in the fund and accounts established by the respective secu-rity agreements. A substantial portion of the assets of the Agency is pledged to the outstanding obligations of theAgency.

Bonds issued and outstanding for the General Fund are as follows:Final Amounts Outstanding

Maturity June 30,Description of Bonds as Issued Date 2007 2006

Variable Rate Building Development Bonds 2034 $ 20,000 $ 20,000 Unamortized bond discount (79) (82)Total bonds payable 19,921 19,918 Less current portion – –Long-term portion $ 19,921 $ 19,918

Bonds issued and outstanding for the Multifamily Program are as follows:Final Amounts Outstanding


Multi-Family Development BondsIssue 1990A, 7.5% 2023 $1,639 $1,680

Multi-Family Housing BondsIssue FHA-1992, 7.75-8.20% 2024 – 10,200

Subordinate Limited Obligation BondsIssue 1995, 5.50-6.15% 2021 3,397 3,555

Rental Housing Refunding BondsSeries 2002 (refunding), 3.58% 2021 79,550 89,760 Series 2003, 3.46-3.55% 2020 117,550 125,790

Residential Development BondsIssue 2002 (refunding), 1.80%-5.25% 2024 32,980 36,315

Multi-Family Development BondsIssue 1989B, 8.25% 2019 385 405Issue 1993A (refunding), 5.38% 2022 11,125 11,655Issue 1993F, 6.53% 2019 5,325 5,615Issue 1997G.7.36% 2027 9,555 9,750Issue 1998H, 6.3% 2028 15,705 16,040Issue 2003 (refunding), 3.25-4.80% 2019 18,150 21,140Issue 2005A, 4.00-5.00% 2025 21,355 22,010 Issue 2005K, Variable 2036 26,885 27,375 Issue 2007L, 4.20% 2009 12,600 –

356,201 381,290 Unamortized bond discount (3) (129)Unamortized deferred loss of refundings (4,753) (5,750)Total bonds payable 351,445 375,411 Less current portion 27,238 26,368 Long-term portion $ 324,207 $ 349,043

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Bonds issued and outstanding for the Single Family Program are as follows:Final Amounts Outstanding


Single Family Mortgage RevenueSeries 1996 - 47, 4.20-6.75% 2027 $ 5,290 $ 6,410Series 1996 - 48, 4.00-6.15% 2028 – 1,345Series 1996 - 52, 4.40-7.00% 2027 1,560 3,325Series 1996 - 53, 4.20-6.15% 2027 1,545 3,330Series 1997 - 54, 5.37-7.22% 2028 2,790 3,855Series 1997 - 55, 3.70-5.75% 2013 2,145 4,185Series 1997 - 56, 4.00-6.15% 2028 2,015 2,945Series 1997 - 57, 4.30-6.15% 2029 1,015 2,750Series 1997 - 58, 4.30-7.81% 2028 2,665 3,195Series 1997 - 59, 4.00-5.15% 2029 7,655 12,425Series 1997 - 60, 4.00-7.69% 2028 2,320 2,975Series 1997 - 61, 4.00-6.80% 2029 47,955 49,260Series 1998 - 62, 4.25-6.40% 2029 51,035 52,290Series 1998 - 63, 3.95-5.50% 2030 53,949 55,229Series 1998 - 64, 3.65-5.25% 2030 52,910 54,871Series 1999 - 65, 3.25-5.25% 2030 54,605 60,330Series 1999 - 66, 4.05-6.95% 2031 41,165 89,110Series 1999 - 67, 4.05-7.51% 2030 43,270 49,250Series 1999 - 68, 4.30-7.02% 2031 26,230 28,650Series 2000 - 69, 4.35-6.25% 2031 36,960 38,615Series 2000 - 70, 4.30-5.90% 2032 36,780 38,425Series 2001 - 72, 3.25-5.35% 2032 167,580 175,985Series 2002 - 73, 1.75-5.45% 2033 155,110 167,740Series 2002 - 74, 1.80-5.25% 2032 98,920 99,360Series 2002 - 75, 1.90-5.20% 2033 92,535 94,465Series 2003 - 77, variable rate 2033 87,900 93,415Series 2003 - 78, variable rate 2025 67,345 69,575Draw Down Series 2003, variable rate 2008 60,000 140,000Series 2003 - 79, variable rate 2034 88,050 93,340Series 2003 - 80, variable rate 2024 3,855 90,000Series 2004 - 81, variable rate 2034 91,155 95,360Series 2004 - 82, variable rate 2034 90,855 95,530Series 2004 - 83, variable rate 2035 118,610 123,435Series 2004 - 84, variable rate 2034 92,980 96,680Series 2004 - 85, variable rate 2035 92,565 97,015Series 2004 - 86, variable rate 2035 98,835 99,415Series 2005 - 87, variable rate 2035 96,590 99,190Series 2005 - 88, variable rate 2037 96,565 99,115Series 2005 - 89, variable rate 2035 120,130 123,645Series 2005 - 90, variable rate 2036 123,090 124,795Series 2005 - 91, variable rate 2036 154,020 154,715Series 2006 - 92, variable rate 2036 124,825 125,000Series 2006 - 93, variable rate 2037 123,475 125,000Series 2006 - 94, variable rate 2037 123,800 -Series 2006 - 95, variable rate 2037 198,195 -Series 2006 - 96, 3.60-5.72% 2037 194,975 -Series 2007 - 97, variable rate 2037 199,415 -Series 2007 - 98, variable rate 2037 199,240 -

3,634,474 3,045,545 Unamortized bond discount (9,549) (8,702)Unamortized deferred loss of refundings (19,735) (21,044)

Total bonds payable 3,605,190 3,015,799 Less current portion 137,455 144,665 Long-term portion $ 3,467,735 $ 2,871,134


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The approximate principal and interest payments required on outstanding bonds over the next five years and there-after are as follows:

Year General Fund Multi-Family Program Single Family Program

Ending Principal Interest Principal Interest Principal Interest Total

2008 $ – $ 742 $ 27,238 $ 15,479 $ 137,455 $ 161,979 $ 342,893 2009 – 742 28,405 14,413 80,460 157,861 281,881 2010 – 742 42,247 12,983 83,685 154,392 294,049 2011 – 742 29,756 11,495 86,605 150,603 279,201 2012 – 742 27,107 10,286 88,415 146,675 273,225 2013– 2017 1,095 3,671 110,320 35,767 465,950 670,150 1,286,953 2018– 2022 2,170 3,352 56,515 15,843 602,772 546,225 1,226,877 2023– 2027 2,675 2,914 21,362 7,024 713,332 395,637 1,142,944 2028– 2032 3,310 2,373 8,105 2,543 758,856 226,824 1,002,011 2033– 2037 10,750 770 5,145 567 593,570 68,922 679,724 2038– 2042 – – – – 23,375 569 23,944

$ 20,000 $ 16,790 $ 356,200 $ 126,400 $3,634,475 $2,679,837 $6,833,702

Variable Rate Demand BondsVariable rate demand bonds have fixed principal maturities and variable interest rates, which are determined andreset periodically by the remarketing agent on each determination date.

Early Extinguishment of DebtDuring the years ended June 30, 2007 and 2006, as a result of the prepayment of certain mortgages, the Agencyrepurchased or redeemed, prior to their scheduled maturity, the principal amount of certain of its bonds, totalingapproximately $35,227 and $56,424, respectively. Net losses of $280 and $344 on early extinguishments have beenrecorded as a non-operating expense for years ended June 30, 2007 and 2006, respectively. These losses arise as aresult of immediate recognition of deferred bond issuance costs and discounts that would have been amortized overthe life of the applicable bond issues had they not been retired.

Current RefundingsDuring the year ended June 30, 2007 and 2006, as a result of new debt proceeds, the Agency refunded the princi-pal amount of certain Single Family Bonds, totaling approximately $231,138 and $252,320, respectively. Althoughthe current refunding resulted in the recognition of a deferred loss of $1,196 and $2,038 for the years ended June30, 2007 and 2006, respectively, the Agency in effect reduced its aggregate debt service payments by $12,534 overthe next 30 years and obtained an economic gain (difference between the present value of the old debt and new debtservice payments) of $6,210 for the year ended June 30, 2007. The Agency reduced it aggregate debt service pay-ments by $11,397 and obtained an economic gain of $21,750 for the year ended June 30, 2006.

Advance RefundingsThe Agency effects an advanced refunding where the proceeds of issued bonds are used to defease outstanding debtof the Agency. The result is an in-substance defeasance whereby the Agency purchases securities, which are deposit-ing into an irrevocable trust with an escrow agent to provide for future debt service payments on the refundedbonds. The Agency defeased Multifamily Residential Development Bonds, Issue H and M in prior years. At June 30,2007 and 2006, the defeased principal outstanding is $3,740 and $4,640, respectively.

Conduit Debt ObligationsTo provide for the financial assistance of a local public housing authority, the Agency issued one series of LimitedObligation Multifamily Development Bond issue 2003-J. The bond is secured by the property financed and ispayable solely from payments received on the underlying loan. The bond does not constitute a debt or pledge of thefaith and credit of the Agency, and accordingly has not been reported in the accompanying financial statements. AtJune 30, 2007, the Limited Obligation Multifamily Development Bond outstanding balance is $10,872.

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Bond CovenantsCapital reserves have been established by the Agency to meet the requirements of bond covenants. The covenantsrequire minimum capital reserve requirements for the Multi-Family and Single Family Programs. The capital reserverequirement for certain Multi-Family bonds requires that a one-year debt service minimum balance be maintainedat all times. The capital reserve requirement for Single Family bonds must be equal to at least 3% of the aggregateprincipal amount of all Single Family bonds outstanding plus one million dollars.

H. Interest Rate Swap

Swap ObjectivesIn order to both reduce the Agency’s overall costs of borrowing long-term capital and protect against the potentialof rising interest rates, the Agency enters into pay-fixed, receive-variable interest rate swap agreements at a cost lessthan what the Agency would have paid to issue conventional fixed-rate debt.

Swap PaymentsAs of June 30, 2007, debt service requirements of the Agency’s outstanding variable-rate debt and net swap pay-ments, assuming current interest rates remain constant, are displayed in the following schedule. As interest ratesvary, variable-rate bond interest payments and net swap payments will also vary.

Year Ended Variable Rate Variable Rate Interest RateJune 30 Bond Principal Bond Interest Swap, Net Total

2008 $ 31,255 $ 68,721 $ 1,044 $ 101,020 2009 31,830 67,451 1,361 100,642 2010 32,625 66,152 1,523 100,300 2011 31,685 64,820 1,698 98,203 2012 27,905 63,558 1,752 93,215 2013–2017 164,880 300,645 11,450 476,975 2018–2022 260,330 256,142 11,812 528,284 2023–2027 350,040 198,778 9,507 558,325 2028–2032 430,625 117,026 5,551 553,202 2033–2037 362,005 34,003 1,488 397,496 2038–2042 4,585 99 3 4,687

$ 1,727,765 $ 1,237,395 $ 47,189 $ 3,012,349

Fair ValueBecause interest rates have changed since the agreements became effective, a majority of the Agency’s interest rateswaps have a positive or negative fair value as of June 30, 2007. Changes in fair values are countered by reductionsor increases in total interest payments required under variable-rate bonds. Given that payments on the Agency’s vari-able-rate bonds adjust to changing interest rates, the associated debt does not have corresponding increases in fairvalue.


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Significant TermsThe terms, fair value and credit rating of the Agency’s outstanding swaps as of June 30, 2007, are included in the fol-lowing schedule:

Counter- Related Fixed Variable FairParty and Bond Notional Effective Maturity Rate Rate Value ofRating* Issue Amount Date Date Paid Received Contract

Goldman 1999-67B $21,005 8/2002 4/2029 5.950% 1-month LIBOR plus 50bps $ (631)Sachs 2000-69B 1,890 3/2000 4/2008 7.305% 3-month LIBOR (22)AAA/Aaa 2001-72 24,350 9/2001 10/2023 5.695% 1-month LIBOR (346)

RHR2002A** 63,585 7/2002 1/2021 3.575% 67% of 1-week LIBOR (871)RHR2002B** 21,115 7/2002 1/2021 3.575% 67% of 1-week LIBOR – 2002-74 30,000 8/2002 10/2032 4.285% 67% of 1-month LIBOR (80)

2003-77B** 59,900 9/2003 10/2033 4.060% 67% of 1-month LIBOR 645 2003-77C 17,150 9/2003 4/2012 2.690% 67% of 1-month LIBOR 274 2004-81B 10,650 4/2004 4/2013 2.365% 67% of 1-month LIBOR 285 2004-81C** 62,740 4/2004 10/2034 3.557% 67% of 1-month LIBOR 2,724 2004-84C 18,635 9/2004 4/2018 3.115% 67% of 1-month LIBOR 388 2004-84D** 58,335 9/2004 10/2034 3.879% 67% of 1-month LIBOR 1,161 2004-86B** 71,565 11/2004 10/2033 3.417% 67% of 1-month LIBOR 1,761 2004-86C** 19,790 12/2004 10/2035 4.125% 67% of 1-month LIBOR 320 2005-89** 122,070 6/2005 10/2035 3.605% 67% of 1-month LIBOR 3,372 2005-91B 70,000 12/2005 10/2036 3.953% 67% of 1-month LIBOR 1,335 2006-94B 35,165 7/2006 04/2027 4.152% 69% of 1-month LIBOR (396)

UBS AG 2000-70 8,190 4/2001 4/2011 6.927% 1-month LIBOR 213 AA+/Aaa 2002-73 11,750 3/2002 4/2010 5.017% 1-month LIBOR (38)

2002-75 30,000 12/2002 10/2032 3.957% 70% of 1-month LIBOR (1,221)2003-79B** 57,350 12/2003 10/2033 3.997% 65% of 1-month LIBOR + 25bps (277)2004-83B 30,565 8/2004 10/2019 3.410% 65% of 1-month LIBOR + 25bps (567)2004-83C** 42,905 8/2004 10/2035 4.060% 65% of 1-month LIBOR + 25bps (224)2004-85B 30,235 11/2004 4/2019 3.168% 65% of 1-month LIBOR + 25bps (1,113)2004-85C** 44,645 11/2004 10/2035 3.879% 65% of 1-month LIBOR + 25bps (708)2005-87B 44,285 3/2005 10/2023 3.460% 65% of 1-month LIBOR + 25bps (1,097)2005-87C** 47,300 3/2005 10/2035 3.882% 65% of 1-month LIBOR + 25bps (970)2005-90C** 60,820 9/2005 4/2036 3.692% 65% of 1-month LIBOR + 25bps (3,048)2006-92B** 42,870 3/2006 10/2036 3.996% 65% of 1-month LIBOR + 25bps (1,032)2006-95C** 39,180 9/2006 04/2026 4.115% 65% of 1-month LIBOR + 25bps (81)2007-97D1 27,535 3/2007 10/2014 4.922% 1-month LIBOR (160)2007-97D2 13,365 3/2007 4/2012 4.862% 1-month LIBOR (422)

Bear Stearns RHR2003A** 58,775 6/2003 7/2020 3.457% 70% of 1-month LIBOR (1,247)AAA/Aaa RHR2003B** 58,775 6/2003 7/2020 3.547% 70% of 1-month LIBOR (1,172)

Lehman MF2003 20,660 6/2003 4/2019 3.860% 1-month LIBOR + 15bps 1,613 AAA/Aaa

PNC Bank VRBD2004 20,000 2/2004 1/2034 3.945% 65% of 1-month LIBOR + 25bps 652 A+/Aa3

Merrill 2004-82B 48,060 5/2004 10/2030 3.643% 61% of 1-month LIBOR + 39bps 786 Lynch 2004-82C** 35,220 5/2004 10/2034 4.164% 61% of 1-month LIBOR + 39bps (1)AA-/Aa3 2005-88B 53,955 5/2005 10/2035 3.500% 61% of 1-month LIBOR + 39bps 1,318

2005-88C** 31,930 5/2005 10/2035 3.975% 61% of 1-month LIBOR + 39bps 561 2006-93B 37,185 5/2006 4/2037 4.266% 61% of 1-month LIBOR + 39bps (390)2007-98C** 41,955 5/2007 10/2037 4.105% 61% of 1-month LIBOR + 39bps 678

Royal Bank MF2005-K** 26,885 3/2005 1/2036 5.183% 1-month LIBOR 964 AA-/Aaa* Credit Ratings supplied by Standard and Poor’s/Moody’s.** Indicates an embedded option to reduce the notional amount without a payment to the counterparty.LIBOR = London Interbank Offered Ratebps = Basis points.

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Basis, Interest Rate and Termination Risks Basis risk exists to the extent the Agency’s variable-rate bond payments do not exactly equal the index of the swap.If any of the swaps are terminated, the associated floating rate bonds would no longer carry synthetic fixed interestrates and, thus, the Agency would be exposed to interest rate risk. This risk is mitigated by the fact that the termi-nation payment could be used to enter into an identical swap at the termination date of the existing swap. Further,if any of the swaps have a negative fair value at termination, the Agency would be liable to the counterparty for pay-ments equal to the swaps’ fair value. The Agency or the counterparty may terminate any of the swaps if the otherparty fails to perform under the terms of the agreement. Furthermore, the Agency maintains the option to terminateswap agreements anytime. As of June 30, 2007, the Agency is not exposed to any additional termination risk on itsinterest rate swaps.

Credit RiskAll of the Agency’s swaps rely upon the performance of the third parties who serve as swap counterparties, and asa result, the Agency is exposed to credit risk – i.e., the risk that swap counterparty fails to perform according to con-tractual obligations. The appropriate measurement of the risk at the reporting date is the fair value of the swaps, asshown in the column labeled “Fair value of contract" in the table above. The Agency is exposed to credit risk on theoutstanding swaps, which have positive fair values. As of June 30, 2007, the Agency is exposed to a total of $19,050of credit risk to counterparties. To mitigate credit risk, the Agency maintains strict credit standards for swap coun-terparties. Additionally, credit events can trigger certain termination provisions of collateral provisions as outlinedin the swap agreements.

Rollover RiskRollover risk is the risk that a swap associated with a bond issue does not extend to the maturity of that debt. Whenthe swap terminates, the associated debt will no longer have the benefit of the swap. The Agency is exposed torollover risk on the following debt:

Debt SwapAssociated Maturity TerminationBond Issue Dates Dates

2000-69B 10/2013 04/20082000-70B 04/2017 04/20112001-72C 10/2024 10/20232002-73C 10/2019 04/2010

* 2004-81B 04/2031 04/2013* 2004-82B 04/2032 10/2030* 2004-83B 10/2033 10/2019* 2004-85B 10/2033 04/2019* 2004-86B 04/2035 10/2033* 2005-87B 10/2034 10/2023* 2005-88B 10/2036 10/2035* 2005-88C 04/2037 10/2035

2007-97D1 10/2037 10/20142007-97D2 10/2037 04/2012

* While the maturity dates for these tax-exempt bond issues differ from the associated interest rate swap termina-tion dates, the principal amount of these bond issues outstanding equals the notional value of the associated inter-est rate swaps.


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I. Advances Receivable, Payable and TransfersA summary of advances to and from other funds is summarized below for the year ended June 30, 2007:

Advance payable fund:Multifamily Program $2,366 Single Family Program 20,398 HEMAP 1,309 Total $ 24,073

Advance receivable fund:General fund $ 24,073

Interfund transfers in:Multifamily Program $543 Single Family Program 39,815

$ 40,358 Interfund transfers out:General fund $ 40,358

Advances and the subsequent transfers are used to (1) move funds between the General Fund and the other fundsof the Agency for financing mortgage related activities, subsidize debt service payments and other operatingadvances, (2) to move general Agency revenue to the General Fund from the other funds, and (3) to reimburse theGeneral Fund from the other funds for expenditures paid on behalf of the other funds by the General Fund.

J. Long-Term LiabilitiesLong-term liability activity for the year ended June 30, 2007:


July 1, 2006 Additions Reductions June 30, 2007

Bonds Payable $ 3,446,835 $ 929,535 $ 365,694 $ 4,010,676 Net Premium (discount) on Bonds (8,913) (2,377) (1,659) (9,631)Deferred refunding loss (26,794) (1,196) (3,501) (24,489)Bonds Payable, net 3,411,128 925,962 360,534 3,976,556

Escrow and Other Liabilities 310,726 523,443 508,778 325,391 Total net long-term liabilities $ 3,721,854 $ 1,449,405 $ 869,312 $ 4,301,947

K. Net Assets

Invested in Capital Assets, net of related debtThis component of net assets consists of capital assets, net of accumulated depreciation and reduced by the out-standing balances of any bonds or other borrowings that are attributable to the acquisition, construction or improve-ment of those assets.

Restricted Net AssetsRestricted net assets represent those portions of the total net assets that are restricted when constraints placed onnet assets use have been either (1) externally imposed by creditors, grantors or laws and regulations of other gov-ernments or (2) are imposed by law through constitutional provisions or enabling legislation.

Unrestricted Net AssetsUnrestricted net assets represent those portions of the total net assets set aside to reflect current tentative plans forfuture operational utilization of such net assets. The Members of the Board may internally designate these assets forspecific loan programs to meet the business needs of the Agency.

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General FundThe net assets of the General Fund are not restricted under the terms of the various bond resolutions and can beused by the Agency for any purpose authorized by the Act. The Agency has internally designated a portion of theGeneral Fund unrestricted net assets as follows:

June 30, June 30,2007 2006

Single-Family Insurance Fund $ 16,500 $ 16,500 Multifamily Insurance Fund 10,000 10,000 PennHOMES Program – 15,000 Housing Initiatives 11,850 11,850 Home Buyer Counseling 6,500 5,500 Home Choice Program 47,150 43,150 Homeless Auxiliary Initiative 1,593 1,593

$ 93,593 $ 103,593

The designation for the Single Family Insurance fund is for any special hazard losses on single-family mortgages notcovered by other insurance, and losses arising out of default on mortgage loans funded with the proceeds of theSeries C and subsequent issues.

The designation for the Multifamily Insurance Fund is for any event where a loss occurs on any of the multifamilydevelopments for which the Agency acts as an insurer or coinsurer.

The designation for the PennHOMES program provides below market and deferred interest financing to lower devel-opment costs for apartment developments financed by the Agency.

The designation for Housing Initiatives provides below market financing for Multifamily and Single Family specialdevelopments financed by the Agency.

The designation for Home Buyer Counseling is to provide funding for home buying education to first time home-buyers.

The designation for the Home Choice Program funds the development of single-family homes in urban communi-ties.

The designation for the Homeless Auxiliary Initiative provides funding to homeless shelters and those organizations,which support shelters.

Multifamily ProgramRestrictions on the Multifamily Program net assets are as follows:

June 30, June 30,2007 2006

Net assets restricted by debt covenants $ 1,960 $ 1,960

Net assets restricted by debt covenants are required under certain bond indentures, whose proceeds are used to fundthe Agency’s multifamily programs.

The Agency has internally designated a portion of the Multifamily Program unrestricted net assets as follows:June 30, June 30,2007 2006

PennHOMES Program $ 137,000 $ 179,290 Senior Housing with Supportive Services 4,000 4,000 Supportive Services 2,300 2,100 Preservation 3,000 2,000

$ 146,300 $ 187,390


44

The designation for the PennHOMES Program, funded by unrestricted multifamily proceeds, lowers developmentcosts for apartment developments financed by the Agency.

The designation for Senior Housing with Supportive Services provides funding for rental housing and specializedresident services for elderly residents.

The designation for Supportive Services provides multifamily developments with funds for resident services.

Preservation is a joint venture with the National Housing Trust to preserve and improve affordable multifamilyhomes for low and moderate-income use. The program saves multifamily developments, which are at risk of conver-sion to market rate housing, and resolves the problems of “troubled” properties that suffer from physical deteriora-tion and financial and social distress.

Single Family ProgramRestrictions on the Single Family Program net assets are as follows:

June 30, June 30,2007 2006


Net assets restricted by debt covenants are required under certain bond indentures, whose proceeds are used to fundthe Agency’s Single Family loan programs, including the Single Family Insurance Fund which has been establishedat not less than 1% of anticipated mortgages to be originated on Issues I and subsequent issues, and held by atrustee.

The Agency has internally designated a portion of the Single Family Program unrestricted net assets as follows:June 30, June 30,2007 2006

Closing Cost Subsidy Program $ 14,750 $ 14,750 Additional Single Family Insurance Program 2,455 2,455

$ 17,205 $ 17,205

The Closing Cost Subsidy is a program to assist qualified single-family homebuyers with the initial costs incurred atthe inception of a mortgage.

The designation for the Additional Single Family Insurance Program covers risk sharing agreement primary mort-gage insurance losses in the event of default on single-family mortgage loans.

Insurance FundThe Agency has internally designated the unrestricted net assets of the Insurance Fund as follows:

June 30, June 30,2007 2006

Risk retention $ 45,009 $ 41,527

The designation for additional risk retention provides private single-family mortgage insurance.

HEMAPThe Agency has internally designated the net assets of the HEMAP as follows:

June 30, June 30,2007 2006

Emergency Mortgage Assistance Program $ 43,760 $ 44,402

The designation for Emergency Mortgage Assistance Program makes available assistance loans to mortgagees facingforeclosure because of circumstances beyond their control.

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L. Pension PlansAs of June 30, 2007, substantially all eligible full-time employees are participants in the Pennsylvania HousingFinance Agency Employees’ Retirement Plan (“Plan”) or Government Excess Benefit Plan (“Excess Plan”), both,which are a noncontributory defined benefit, single employer plans.

Plan DescriptionsFull-time employees become eligible for participation in the Plan after completion of one year of service. A partici-pant’s benefits vest upon the completion of five years of service. Under the provisions of the Plan, participants withprior military service may receive credit for their time of service providing they contribute funds equivalent to thecost of their pension benefits accumulated during their military service. A participant is eligible for normal retire-ment after attainment of age 65, or age 55 and completion of 30 years of service, or at any age after completion of35 years of service. The Plan also provides early and late retirement provisions and death and disability benefits. Thenormal retirement pension is payable monthly during the participant’s lifetime with payments ceasing upon the par-ticipant’s death.

All participants in the Plan who will receive retirement benefits in an amount that is less than the benefits otherwisepayable under the terms of the Plan due to limitations on benefits imposed by IRC Section 415 shall automaticallyparticipate in the Excess Plan. Participation in the Excess Plan will cease for any year in which the retirement bene-fits from the Plan does not exceed the limitation imposed by IRC Section 415. Pension payments under the ExcessPlan are paid in the same form as the pension benefits payable under the Plan.

Funding PolicyContribution requirements of the Plan and Excess Plan are established and may be amended by the Members of theBoard. The Plan’s funding policy provides for actuarially determined periodic contributions at rates that, for individ-ual employees, increase gradually over time so that sufficient assets will be available to pay benefits when due.

Annual Pension Cost and Net Pension ObligationThe Agency’s annual pension cost and net pension obligation to the Plan are as follows:

June 30, June 30,2007 2006

Annual required contribution $ 2,335 $ 1,482 Employer contributions made (2,400) (1,450)

Change in net pension obligation $ (65) $ 32

Net pension (asset) obligationBeginning of year (834) (866)End of year $ (899) $ (834)

The Agency’s contribution to the Plan and Excess Plan is shown in the following schedule and exceeded the actuar-ial required and actual contribution. The actuarial required contribution was computed as part of an actuarial valu-ation as of January 01, 2007, using the aggregate actuarial cost method. Significant actuarial assumptions used in thevaluation include (a) a rate of return on present and future assets of 7.5% per year compounded annually and (b)projected salary increases of 4.5% per year. Both (a) and (b) include an unstated moderate inflation componentbased on long-term historical average rates. The actuarial value of assets is determined using market values deter-mined by the trustee.

Three-Year Trend Information for the Plan:Calendar Year Ending Annual Pension Percentage of Net Pension

Cost APC Contributed (Asset)

December 31, 2004 $ 1,501 106.6% $ (866)December 31, 2005 1,482 97.8% (834)December 31, 2006 2,335 102.8% (899)


46

M. Contingencies and Commitments

Contingent LiabilitiesThe Agency participates in several federally assisted programs. Those programs are subject to program audits andadjustments by the grantor agencies or their representatives. Any disallowed claims, including amounts already col-lected, would become a liability of the Agency. In management’s opinion, disallowance, if any, will be immaterial.

CommitmentsOutstanding commitments by the Agency to make or acquire multifamily and single-family mortgages aggregateapproximately $2,625 and $128,664, respectively, at June 30, 2007.

LitigationIn the normal course of business, there are various claims and suits pending against the Agency. In the opinion ofthe Agency’s management and counsel, the amount of such losses that might result from these claims and suits, ifany, would not materially affect the Agency’s financial position.

Risk ManagementThe Agency is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errorsand omissions and natural disasters for which the Agency carries commercial insurance.

N. Subsequent EventsOn September 06, 2007, the Agency issued $200,000 Single Family Mortgage Revenue Bonds, Series 2007-99Athrough 2007-99D. The bonds are general obligations of the Agency that bear interest at fixed and variable ratespayable on each April 1 and October 1, with a final maturity date of April 1, 2038. The bonds will be primarilysecured by program obligations consisting of qualifying single-family mortgage loans purchased from bond pro-ceeds.

On September 06, 2007, the Agency entered into two separate interest rate swap agreements. The purpose of theswap agreements is to effectively convert the variable rate interest associated with the Series 2007-99C and 2007-99D Bonds to a synthetic fixed rate in an effort to hedge the Agency's exposure to interest rate fluctuations and totake advantage of interest rate environments in the financial markets. Under the terms of the agreement, the Agencyis to pay to the counterparty a fixed rate of 3.885% and 5.149% respectively, for Series 2007-99C and Series 2007-99D and receive from the counterparty a variable rate equal to 69% of one-month LIBOR and one-month LIBOR,respectively, for Series 2007-99C and Series 2007-99D.

47



BASIC FINANCIAL STATEMENTS ANDREQUIRED SUPPLEMENTAL INFORMATIONWITH REPORT OF INDEPENDENT AUDITORS

JUNE 30, 2008 AND 2007

INDEX

Page

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Report of Independent Auditors on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed inAccordance with Government Auditing Standards . . . . . . . . . 51

Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . 53

Audited Basic Financial Statements

Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Statements of Revenues, Expenses and Changes in Net Assets . 58

Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Required Supplemental Information (unaudited) . . . . . . . . . . . 88

4948

REQUIRED SUPPLEMENTAL INFORMATION (UNAUDITED)June 30, 2007 and 2006(in thousands of dollars)

Schedule of Retirement Plan Funding ProgressEntry AgeActuarial UAAL as a

Actuarial Accrued Unfunded PercentageActuarial Value of Liability AAL Funded Covered of CoveredValuation Assets (AAL) (UAAL) Ratio Payroll PayrollDate (a) (b) (b-a) (a/b) (c) ((b-a)/c)

01/01/2005 $ 24,704 $ 29,604 $ 4,900 83.4% $ 10,901 45.0%

01/01/2006 26,864 37,975 11,111 70.7% 11,565 96.1%

01/01/2007 31,939 41,823 9,884 76.4% 12,464 79.3%

The information presented in the required supplemental information schedule is determined as part of the actuarial val-uations at the dates indicated.

Report of Independent Auditors

Members of the Board of Directors Pennsylvania Housing Finance Agency

We have audited the accompanying financial statements of the General Fund, Multi-family Program, Single FamilyProgram, Insurance Fund and Homeowners Emergency Mortgage Assistance Program (HEMAP) as of and for theyears ended June 30, 2008 and 2007, which collectively comprise the basic financial statements, as listed in the tableof contents, of the Pennsylvania Housing Finance Agency (PHFA), a component unit of the Commonwealth ofPennsylvania. These financial statements are the responsibility of PHFA’s management. Our responsibility is toexpress opinions on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States and thestandards applicable to financial audits contained in Government Auditing Standards, issued by the ComptrollerGeneral of the United States. Those standards require that we plan and perform the audit to obtain reasonable assur-ance about whether the financial statements are free of material misstatement. We were not engaged to perform anaudit of PHFA’s internal control over financial reporting. Our audits included consideration of internal control overfinancial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of PHFA’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant esti-mates made by management, and evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective finan-cial position of the General Fund, Multi-family Program, Single Family Program, Insurance Fund and HEMAP ofPHFA, as of June 30, 2008 and 2007, and the respective changes in financial position and cash flows for the yearsthen ended in conformity with accounting principles generally accepted in the United States.

As discussed in Notes 10 and 11, PHFA adopted Government Accounting Standards Board (GASB) Statement No.50, Pension Disclosures and GASB Statement No. 45, Accounting and Financial Reporting by Employers forPostemployment Benefits Other Than Pension.

In accordance with Government Auditing Standards, we have also issued our report dated September 30, 2008 on ourconsideration of PHFA’s internal control over financial reporting and on our tests of its compliance with certain pro-visions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is todescribe the scope of our testing of internal control over financial reporting and compliance and the results of thattesting, and not to provide an opinion on the internal control over financial reporting or on compliance. That reportis an integral part of an audit performed in accordance with Government Auditing Standards and should be consid-ered in assessing the results of our audit.

Management’s Discussion and Analysis, the Schedule of Retirement Plan Funding Progress, and the Schedule ofFunding Progress for the Postemployment Healthcare Plan on pages 53 through 84 and 85, respectively, are not arequired part of the basic financial statements but are supplementary information required by the GovernmentalAccounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiriesof management regarding the methods of measurement and presentation of the required supplementary informa-tion. However, we did not audit the information and express no opinion on it.

September 30, 2008

Report of Independent Auditors on Internal ControlOver Financial Reporting and on Compliance

and Other Matters Based on an Audit of the Financial StatementsPerformed in Accordance with Government Auditing Standards


We have audited the financial statements of the General Fund, Multi-family Program, Single Family Program, Insurance Fund andHomeowners Emergency Mortgage Assistance Program (HEMAP) as of and for the year ended June 30, 2008, which collectively com-prise the basic financial statements of the Pennsylvania Housing Finance Agency (PHFA), a component unit of the Commonwealth ofPennsylvania, and have issued our report thereon dated September 30, 2008. We conducted our audit in accordance with auditingstandards generally accepted in the United States and the standards applicable to financial audits contained in Government AuditingStandards, issued by the Comptroller General of the United States.

Internal control over financial reporting

In planning and performing our audit, we considered PHFA’s internal control over financial reporting as a basis for designing ourauditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing anopinion on the effectiveness of PHFA’s internal control over financial reporting. Accordingly, we do not express an opinion on theeffectiveness of PHFA’s internal control over financial reporting.

Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph andwould not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or mate-rial weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that weconsider to be significant deficiencies.

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal courseof performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control defi-ciency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process or reportfinancial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihoodthat a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the enti-ty’s internal control. We consider the deficiency FS-2008-1 described below to be a significant deficiency in internal control over finan-cial reporting. However, the significant deficiency was remediated prior to the issuance of this report.

FINDING FS-2008-1

CriteriaPHFA is responsible for the fair presentation of its basic financial statements in conformity with U.S. generally accepted account-ing principles (GAAP), and for establishing and maintaining effective internal control over financial reporting.

ConditionLoans forgiven during the year under audit, otherwise reported as assets with carrying values, were not properly removed fromthe accounts and records of PHFA.

CausePromissory notes attached to loan agreements, which contained clauses affording expiration and loan forgiveness to borrowerscontingent upon borrowers’ adherence to certain terms within the promissory notes and corresponding loan agreements, expiredduring the year under audit. The promissory notes’ expiration resulted in forgiveness of the loans to which they were attached.The forgiven loan amounts, which had otherwise been considered and reported as assets with carrying values, were not properlyremoved from the accounts and records of PHFA. This resulted in the need for EY to propose an adjusting entry, posted to theaccounting records and reflected in the financial statements attributable to the year under audit, to remove the carrying amountof the uncollectible asset.

EffectThe basic financial statements required quantitative adjustment of a nature great enough to conclude that there exists a more than

Report of Independent Auditors Report of Independent Auditors on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial StatementsPerformed in Accordance with Government Auditing Standards

50 51

remote likelihood of misstatement of the financial statements that would not otherwise be prevented or detected by PHFA’s inter-nal control over financial reporting.

RecommendationEY recommends that PHFA enhance its system by which promissory notes and corresponding loans subject to potential forgive-ness are recorded and monitored, and that loan amounts which may result in a reduction of assets reflected on financial state-ments prepared in accordance with GAAP be better tracked from the time the underlying loans are initiated. PHFA may considergenerating and maintaining a schedule of such loans, reflecting the amount of the loans and both the loans’ inception dates andpotential expiration dates, and monitoring collectibility on a regular basis. Implementing procedures to better track potentially for-givable loans may help to assist PHFA in reflecting a more accurate or collectible amount of assets relating to loans receivable onits financial statements and improve the design of the PHFA’s internal control over financial reporting.

Auditee PositionAgree.

Explanation and Corrective Action to Be TakenPromissory notes’ expirations were not communicated to the accounting functions of PHFA on a timely basis. Although properaccounting of these loans occurred when the notes were originated, future contingencies, which in this case relates to the forgive-ness provisions of certain loans and terms thereto, were not made known to those performing accounting functions.

The accounting functions of both the Multifamily and Single Family Programs will maintain and monitor these agreements andcontract documents and ensure that related pertinent information accompanies all loan information used to record transactionsinto PHFA’s accounting systems.

In addition, funds will not be disbursed until PHFA obtains a signed copy of the mortgage note pertaining to that disbursement.

Timetable for ImplementationImmediately.

Monitoring to Be PerformedManagement will maintain a regular review process of the terms and other conditions of agreements and contracts that affectPHFA’s accounting records.

Responsible Person(s)Director of Accounting and Loan Servicing and the Manager of Finance.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihoodthat a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control. Our consid-eration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section andwould not necessarily identify all deficiencies in the internal control that might be significant deficiencies and, accordingly, would notnecessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we believe that the signif-icant deficiency described above is not a material weakness.

Compliance and other matters

As part of obtaining reasonable assurance about whether PHFA’s financial statements are free of material misstatement, we performedtests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which couldhave a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliancewith those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our testsdisclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

PHFA’s response to the finding identified in our audit is described above. We did not audit PHFA’s response and accordingly, weexpress no opinion on it.

This report is intended solely for the information and use of the Members of the Board of Directors, management, others within theentity, federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other thanthese specified parties.

September 30, 2008

Report of Independent Auditors on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial StatementsPerformed in Accordance with Government Auditing Standards

MANAGEMENT’S DISCUSSION AND ANALYSISYears Ended June 30, 2008 and 2007

This discussion and analysis of the financial performance of the Pennsylvania Housing Finance Agency (“Agency”) isrequired supplementary information. It introduces the financial statements for the fiscal year ended June 30, 2008 withselected comparative information for the fiscal year ended June 30, 2007 and 2006. It provides the financial highlightsand assessments that, in management’s view, significantly affected the Agency’s overall financial position. Readers areencouraged to consider the information presented in conjunction with the financial statements as a whole, which followthis section.

BASIC FINANCIAL STATEMENTSThe basic financial statements include three required statements that provide different views of the Agency. They are theBalance Sheet, the Statement of Revenues, Expenses and Change in Net Assets, the Statement of Cash Flows and theaccompanying notes to the financial statements.

The Balance Sheet provides information about the liquidity and solvency of the Agency by indicating the nature and theamounts of investments in resources (assets), the obligations to Agency creditors (liabilities) and net assets. Net assetsrepresent the amount of total assets less liabilities. The organization of the statement separates assets and liabilities intocurrent and noncurrent.

The Statement of Revenues, Expenses and Change in Net Assets accounts for all of the current year’s revenue andexpenses in order to measure the success of the Agency’s operations over the past year. It is used to determine how theAgency has funded its costs. By presenting the financial performance of the Agency, the change in net assets is similar tonet profit or loss for a business. This statement is organized by separating operating revenues and expenses from non-operating revenues and expenses. Operating revenues and expenses are defined as those relating to our primary busi-ness of funding homes and apartments throughout the Commonwealth of Pennsylvania. Nonoperating revenues andexpenses are those that do not contribute directly to our primary business.

The Statement of Cash Flows is presented using the direct method of reporting. It provides information about theAgency’s cash receipts, cash payments and net changes in cash resulting from operations, investing, and financing activ-ities. Cash receipts and payments are presented in this statement to arrive at the net increase or decrease in cash andcash equivalents for each year.

These statements are accompanied by a complete set of notes to the financial statements and required supplementaryinformation regarding the funding progress of the Agency’s Retirement and Postemployment Healthcare Plans. Theypresent information that is essential in understanding the financial statements, such as the Agency’s accounting meth-ods and policies providing information about the content of the financial statements. Additionally, details of contractu-al obligations, future commitments, contingencies and developing events that could materially affect the Agency’s finan-cial position are disclosed.

FINANCIAL ANALYSISThe following sections will discuss the Agency’s financial results for the three-year period ended June 30, 2008 andshould be read in conjunction with the audited financial statements that follow this section. The amounts discussed havebeen rounded to facilitate reading of this analysis.

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MANAGEMENT’S DISCUSSION AND ANALYSISYears Ended June 30, 2008 and 2007

(in thousands of dollars) Percentage PercentageJune 30, June 30, June 30, Change Change2008 2007 2006 2008/2007 2007/2006

AssetsMortgage loans receivable, net $ 4,281,078 $ 3,859,214 $ 3,368,407 10.9% 14.6%Capital assets, net 34,838 35,411 35,434 –1.6% –0.1%Other assets 1,083,621 1,192,595 1,070,958 –9.1% 11.4%

Total assets $ 5,399,537 $ 5,087,220 $ 4,474,799 6.1% 13.7%

LiabilitiesLong-term liabilities 4,410,731 4,081,045 3,550,821 8.1% 14.9%Other liabilities 244,973 294,438 256,229 –16.8% 14.9%

Total liabilities $ 4,655,704 $ 4,375,483 $ 3,807,050 6.4% 14.9%

Net assets:Invested in capital assets, net ofrelated debt $ 14,914 $ 15,456 $ 15,488 –3.5% –0.2%

Restricted 84,185 83,060 90,126 1.4% – 7.8%Unrestricted 644,734 613,221 562,135 5.1% 9.1%

Total net assets $ 743,833 $ 711,737 $ 667,749 4.5% 6.6%

Percentage PercentageJune 30, June 30, June 30, Change Change2008 2007 2006 2008/2007 2007/2006

Operating Revenues:Interest on mortgage loans $ 201,535 $ 181,445 $ 158,181 11.1% 14.7%Federal program awards 461,231 311,745 289,228 48.0% 7.8%Other income 46,791 41,917 72,171 11.6% –41.9%

Total operating revenue 709,557 535,107 519,580 32.6% 3.0%

Operating Expense 718,314 535,177 485,656 34.2% 10.2%Non-operating expense (revenue) (40,853) (44,058) 16,300 –7.3% –370.3%Change in net assets $ 32,096 $ 43,988 $ 17,624 –27.0% 149.6%

Changes in Financial Position The following tables represent the condensed Balance Sheets and Statement of Revenues, Expenses and Changes in NetAssets:

Loan Portfolios Purchased and construction mortgage loan portfolios are the Agency’s primary performing assets. The loan portfoliocontinues to increase year by year driven by the escalating housing demand in the Commonwealth. The following arekey highlights of loan related activities:

• During the year, the Multifamily Program funded approximately $71 million of loans that provide construction andpermanent loan financing for rental housing development. That funding activity increased the total loan portfolio by$12 million to $562 million at June 30, 2008 from $550 million at June 30, 2007 after principal payments and adjust-ments for loan losses. During the prior year, the Multifamily Program funded approximately $43 million of loans. Theportfolio increased to $550 million as of June 30, 2007, from $547 million as of June 30, 2006 due to adjustments forloan losses and principal payments.

• The Single Family Program purchased approximately $642 million of new mortgage loans during the year. That activ-ity increased the total portfolio by $400 million to $3.7 billion as of June 30, 2008, from $3.3 billion as of June 30,2007 after adjustments for loan losses and principal payments. The total loan portfolio of the Agency increased $500million to $3.3 billion at June 30, 2007 from $2.8 billion at June 30, 2006.

• The Homeowners Emergency Mortgage Assistance Program (“HEMAP”) disbursed approximately $20 million ofemergency mortgage assistance loans during the year. The total portfolio increased $1 million to $49 million as ofJune 30, 2008, from $48 million as of June 30, 2007. During the prior year, HEMAP disbursed approximately $22 mil-lion of assistance loans maintaining the portfolio at $48 million as of June 30, 2007 and June 30, 2006.

Long-Term Debt ActivityTotal liabilities of the Single Family Program increased by $297 million mainly as a result of the issuance of long-termbonds in order to provide funds needed to make new mortgage loans, as described previously. The Single FamilyProgram issued four separate mortgage revenue bonds totaling approximately $610 million. Additionally, the SingleFamily Program issued a $2.5 million note to fund the Homeowners’ Equity Recovery Opportunity Loan Program.

During the prior year, total liabilities outstanding increased by $568 million. The Single Family Program issued five sep-arate single-family mortgage revenue bonds totaling approximately $917 million during the prior year. During fiscal yearended June 30, 2006, total liabilities increased by $165 million, with $530 million in bonds issued.

Change in Net AssetsThe Agency reports financial activity financed with debt secured solely by the pledge of net revenues from that activity.The term net assets defines the surplus or deficit of that activity. The following are key highlights of changes in net assets:

• Net assets of the General Fund decreased by approximately $16 million to $108 million at June 30, 2008 from $124million at June 30, 2007. Net assets decreased by $34 million to $124 million at June 30, 2007 from $158 million atJune 30, 2006.

• Net assets of the Multifamily Program decreased by approximately $21 million to $242 million at June 30, 2008 from$263 million at June 30, 2007. Net assets increased by $23 million to $263 million at June 30, 2007 from $240 mil-lion at June 30, 2006.

• Net assets of the Single Family Program increased by approximately $68 million to $303 million at June 30, 2008from $235 million at June 30, 2007. Net assets increased by $51 million to $235 million at June 30, 2007 from $184million at June 30, 2006.

• Net assets of the Insurance Fund increased by approximately $3 million to $48 million at June 30, 2008 from $45million at June 30, 2007. Net assets increased approximately $3 million to $45 million from $42 million at June 30,2007 and 2006, respectively.

• Net assets of HEMAP decreased by approximately $2 million to $42 million at June 30, 2008 from $44 million at June30, 2007. Net assets remained constant at $44 million at June 30, 2007 and 2006, respectively.

Financial HighlightsDuring the fiscal year ended June 30, 2008, the Agency’s total assets increased by $312 million due primarily to increas-es in mortgage loan receivables and investments, which were made possible by the issuance of Agency debt. Total liabil-ities increased by $280 million due to increases in the related debt to finance mortgage loans. During the prior year, totalassets increased by $612 million and total liabilities increased by $568 million over 2006.

The Agency’s total increase in net assets was $32 million as a result of this year’s operations, for the year ended June 30,2008, compared with a $44 million increase in net assets in the prior year. Increase in net assets was $18 million for theyear ended June 30, 2006. The reduction in the current year’s increase of net assets was primarily driven by:

• Increases in interest paid for outstanding long-term debt exceeded the increase of interest received on mortgage loanrepayments,

• Increases in salary and related benefits and general and administrative costs to staff mortgage foreclosure preventioninitiatives and programs, and

• Increased provision for loan loss influenced by the current mortgage loan environment.

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2008 2007


AssetsCurrent Assets:

Cash and cash equivalents $ 39,279 $ 199,021 $ 374,682 $ 25,778 $ 638,760 $ 205 $ 638,965 $ 14,965 $ 273,987 $ 427,526 $ 32,692 $ 749,170 $ – $ 749,170

Investments 4,086 4,135 1,999 – 10,220 – 10,220 9,244 2,218 23,652 – 35,114 – 35,114

Accrued interest receivable on investments 263 973 1,527 218 2,981 – 2,981 503 655 3,357 131 4,646 – 4,646

Mortgage loans receivable, net – 28,496 64,270 – 92,766 6,404 99,170 – 27,507 57,271 – 84,778 6,335 91,113

Advances to other funds 14,512 – – – 14,512 – 14,512 24,073 – – – 24,073 – 24,073

Total current assets 58,140 232,625 442,478 25,996 759,239 6,609 765,848 48,785 304,367 511,806 32,823 897,781 6,335 904,116

Noncurrent assets:

Restricted cash and cash equivalents – 3,838 80,347 – 84,185 – 84,185 – 1,960 81,100 – 83,060 – 83,060

Investments 39,112 65,480 185,773 23,640 314,005 – 314,005 63,030 48,129 154,476 13,054 278,689 – 278,689

Mortgage loans receivable, net – 533,797 3,605,821 – 4,139,618 42,290 4,181,908 – 522,433 3,203,719 – 3,726,152 41,949 3,768,101

Capital assets, net 34,815 – – – 34,815 23 34,838 35,377 – – – 35,377 34 35,411

Deferred assets 4,093 7,662 6,993 – 18,748 5 18,753 2,280 10,091 5,466 – 17,837 6 17,843

Total noncurrent assets 78,020 610,777 3,878,934 23,640 4,591,371 42,318 4,633,689 100,687 582,613 3,444,761 13,054 4,141,115 41,989 4,183,104

Total assets 136,160 $ 843,402 $ 4,321,412 $ 49,636 $ 5,350,610 $ 48,927 $ 5,399,537 $ 149,472 $ 886,980 $ 3,956,567 $ 45,877 $ 5,038,896 $ 48,324 $ 5,087,220

LiabilitiesCurrent liabilities:

Bonds and notes payable $ – $ 27,850 $ 88,390 $ – $ 116,240 $ – $ 116,240 $ – $ 27,238 $ 137,455 $ – $ 164,693 $ – $ 164,693

Accrued interest payable 387 5,936 41,550 – 47,873 – 47,873 392 6,253 37,648 – 44,293 – 44,293

Accounts payable and accrued expenses 3,321 79 1,014 301 4,715 501 5,216 3,222 11 899 258 4,390 780 5,170

Escrow – 16,274 44,858 – 61,132 – 61,132 – 40,501 15,708 – 56,209 – 56,209

Advances from other funds – 206 11,500 – 11,706 2,806 14,512 – 2,366 20,398 – 22,764 1,309 24,073

Total current liabilities 3,708 50,345 187,312 301 241,666 3,307 244,973 3,614 76,369 212,108 258 292,349 2,089 294,438

Noncurrent liabilities:

Bonds and notes payable 19,924 295,703 3,809,363 – 4,124,990 – 4,124,990 19,921 324,207 3,467,735 – 3,811,863 – 3,811,863

Escrow and other noncurrent liabilities 4,163 255,566 21,908 1,037 282,674 3,067 285,741 1,791 222,974 41,332 610 266,707 2,475 269,182

Total noncurrent liabilities 24,087 551,269 3,831,271 1,037 4,407,664 3,067 4,410,731 21,712 547,181 3,509,067 610 4,078,570 2,475 4,081,045

Total liabilities 27,795 601,614 4,018,583 1,338 4,649,330 6,374 4,655,704 25,326 623,550 3,721,175 868 4,370,919 4,564 4,375,483

Net AssetsInvested in capital assets, net of related debt 14,891 – – – 14,891 23 14,914 15,456 – – – 15,456 – 15,456

Restricted by debt covenants – 3,838 80,347 – 84,185 – 84,185 – 1,960 81,100 – 83,060 – 83,060

Unrestricted 93,474 237,950 222,482 48,298 602,204 42,530 644,734 108,690 261,470 154,292 45,009 569,461 43,760 613,221

Total net assets 108,365 241,788 302,829 48,298 701,280 42,553 743,833 124,146 263,430 235,392 45,009 667,977 43,760 711,737

Total liabilities and net assets $ 136,160 $ 843,402 $ 4,321,412 $ 49,636 $ 5,350,610 $ 48,927 $ 5,399,537 $ 149,472 $ 886,980 $ 3,956,567 $ 45,877 $ 5,038,896 $ 48,324 $5,087,220



B A L A N C E S H E E T S June 30, 2008 and 2007(in thousands of dollars)

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2008 2007


Operating revenues:Fee income $ 30,025 $ – $ 3,436 $ 313 $ 33,774 $ 254 $ 34,028 $ 27,122 $ 38 $ 2,454 $ 451 $ 30,065 $ 351 $ 30,416

Interest on mortgage loans – 33,445 167,213 – 200,658 877 201,535 – 35,484 144,986 – 180,470 975 181,445

Federal program awards – 459,687 1,544 – 461,231 461,231 – 311,745 – – 311,745 – 311,745

Other Income 78 1,473 – – 1,551 11,212 12,763 – 1,501 – – 1,501 10,000 11,501

Total operating revenue (loss) 30,103 494,605 172,193 313 697,214 12,343 709,557 27,122 348,768 147,440 451 523,781 11,326 535,107

Operating expenses:Interest on bonds 788 17,079 180,595 – 198,462 – 198,462 825 14,854 156,738 – 172,417 – 172,417

Salaries and related benefits 22,155 – – – 22,155 2,871 25,026 18,371 – – – 18,371 2,300 20,671

General and administrative 5,288 2,359 5,076 600 13,323 2,065 15,388 5,367 2,130 4,830 400 12,727 2,106 14,833


Federal program awards expense – 459,687 1,544 – 461,231 461,231 – 311,745 – – 311,745 – 311,745

Total operating expenses 28,231 487,167 188,615 600 704,613 13,701 718,314 24,563 334,929 163,168 400 523,060 12,117 535,177

Net operating income (loss) 1,872 7,438 (16,422) (287) (7,399) (1,358) (8,757) 2,559 13,839 (15,728) 51 721 (791) (70)

Nonoperating revenue (expenses):Investment income 4,614 4,294 28,447 3,576 40,931 151 41,082 4,204 8,756 27,808 3,421 44,189 149 44,338

Loss on early extinguishment of debt – (31) (198) – (229) – (229) – (132) (148) – (280) – (280)

Income (loss) before transfers 6,486 11,701 11,827 3,289 33,303 (1,207) 32,096 6,763 22,463 11,932 3,472 44,630 (642) 43,988

Transfers:Ttransfers out (in) 22,267 33,343 (55,610) – – – – 40,358 (543) (39,815) – – – –

Change in net assets (15,781) (21,642) 67,437 3,289 33,303 (1,207) 32,096 (33,595) 23,006 51,747 3,472 44,630 (642) 43,988

Total net assets — beginning of year 124,146 263,430 235,392 45,009 667,977 43,760 711,737 157,741 240,424 183,645 41,537 623,347 44,402 667,749

Total net assets — end of year $ 108,365 $ 241,788 $ 302,829 $ 48,298 $ 701,280 $ 42,553 $ 743,833 $ 124,146 $ 263,430 $ 235,392 $ 45,009 $ 667,977 $ 43,760 $ 711,737



S TAT E M E N T S O F R E V E N U E S , E X P E N S E S A N D C H A N G E S I N N E T A S S E T SYears Ended June 30, 2008 and 2007(in thousands of dollars)

58 59


2008 2007


Cash flows from operating activitiesReceipts from principal payments on mortgage loans $ – $ 58,870 $ 233,115 $ – $ 291,985 $ 10,750 $ 302,735 $ – $ 39,772 $ 240,762 $ – $ 280,534 $ 22,199 $ 302,733

Receipts from fees, charges and other receipts 30,025 – 3,436 313 33,774 11,466 45,240 27,122 1,539 2,454 451 31,566 10,351 41,917

Receipts from interest on mortgages – 33,127 169,043 – 202,170 948 203,118 – 38,243 151,957 – 190,200 975 191,175

Receipts for funds held in escrow 2,450 9,838 9,726 – 22,014 – 22,014 1,487 10,437 2,872 1 14,797 – 14,797

Payments for mortgages purchased and advances – (71,223) (642,216) – (713,439) (19,907) (733,346) – (42,862) (727,863) – (770,725) (22,851) (793,576)

Payments to employees and suppliers (27,600) (7,904) (7,888) (217) (43,609) (4,698) (48,307) (20,743) (8,247) (7,351) (275) (36,616) (12,003) (48,619)

Net cash provided by (used in) operating activities 4,875 22,708 (234,784) 96 (207,105) (1,441) (208,546) 7,866 38,882 (337,169) 177 (290,244) (1,329) (291,573)

Cash flows from noncapital financing activitiesProceeds from the sale of bonds – 180,790 609,625 – 790,415 – 790,415 – 12,600 916,935 – 929,535 – 929,535

Payments for retirement of bonds – (208,713) (317,260) – (525,973) – (525,973) – (36,698) (327,692) – (364,390) – (364,390)

Payments of bond interest – (17,396) (176,693) – (194,089) – (194,089) – (15,528) (148,689) – (164,217) – (164,217)

Operating subsidies and transfers to other funds (12,706) (35,503) 46,712 – (1,497) 1,497 – (20,600) 298 19,647 – (655) 655 –

Net cash provided by (used in) noncapital financing activities (12,706) (80,822) 162,384 – 68,856 1,497 70,353 (20,600) (39,328) 460,201 – 400,273 655 400,928

Cash flows from capital financing activitiesPurchases of capital assets (755) – – – (755) (2) (757) (1,304) – – – (1,304) (16) (1,320)

Interest paid on capital debt (790) – – – (790) – (790) (820) – – – (820) – (820)

Net cash used in capital financing activities (1,545) – – – (1,545) (2) (1,547) (2,124) – – – (2,124) (16) (2,140)

Cash flows from investing activitiesProceeds from sales and maturities of investments 91,412 82,955 996,371 – 1,170,738 – 1,170,738 28,092 148,489 1,649,243 1,842 1,827,666 – 1,827,666

Interest and dividends 1,343 6,471 26,827 1,990 36,631 151 36,782 4,002 5,220 26,690 1,049 36,961 149 37,110

Purchases of investments (59,065) (104,400) (1,004,395) (9,000) (1,176,860) – (1,176,860) (33,999) (63,896) (1,725,327) – (1,823,222) – (1,823,222)

Net cash provided by (used in) investing activities 33,690 (14,974) 18,803 (7,010) 30,509 151 30,660 (1,905) 89,813 (49,394) 2,891 41,405 149 41,554

Net increase (decrease) in cash and cash equivalents 24,314 (73,088) (53,597) (6,914) (109,285) 205 (109,080) (16,763) 89,367 73,638 3,068 149,310 (541) 148,769

Cash and cash equivalents, beginning of year 14,965 275,947 508,626 32,692 832,230 – 832,230 31,728 186,580 434,988 29,624 682,920 541 683,461

Cash and cash equivalents, end of year $ 39,279 $ 202,859 $ 455,029 $ 25,778 $ 722,945 $ 205 $ 723,150 $ 14,965 $ 275,947 $ 508,626 $ 32,692 $ 832,230 $ – $ 832,230



S TAT E M E N T S O F C A S H F L OW SYears Ended June 30, 2008 and 2007(in thousands of dollars)

60 61


2008 2007


Reconciliation of operating income (loss) to net cash provided by (used in) operating activities:

Operating income (loss) $ 1,872 $ 7,438 $ (16,422) $ (287) $ (7,399) $ (1,358) $ (8,757) $ 2,559 $ 13,839 $ (15,728) $ 51 $ 721 $ (791) $ (70)

Interest expense on bonds 788 17,079 180,595 – 198,462 – 198,462 825 14,854 156,738 – 172,417 – 172,417


Depreciation, amortization and accretion 1,317 – – – 1,317 13 1,330 1,333 – – – 1,333 10 1,343

Changes in assets and liabilities:

Mortgage loans receivable, net – (20,395) (410,501) – (430,896) (9,175) (440,071) – (9,290) (488,701) – (497,991) (8,363) (506,354)

Accrued interest receivable on investments 240 (318) 1,830 (87) 1,665 – 1,665 609 2,759 6,971 (27) 10,312 35 10,347

Deferred and other assets (1,813) 2,429 (1,527) – (911) 1 (910) 1,365 83 (947) 1 502 43 545

Accounts payable and accrued expenses 99 68 115 43 325 (279) 46 (312) – 2,872 152 2,712 26 2,738

Escrow and other liabilities 2,372 8,365 9,726 427 20,890 592 21,482 1,487 10,437 26 – 11,950 – 11,950

Net cash provided by (used in) operating activities $ 4,875 $ 22,708 $(234,784) $ 96 $ (207,105) $ (1,441) $ (208,546) $ 7,866 $ 38,882 $ (337,169) $ 177 $ (290,244) $ (1,329) $ (291,573)



S TAT E M E N T S O F C A S H F L OW S , C O N T I N U E DYears Ended June 30, 2008 and 200(in thousands of dollars)

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6564


1. Description of the AgencyThe Pennsylvania Housing Finance Agency (“Agency”) is a corporate and political body created by the HousingFinance Agency Law, Act of December 3, 1959, P.L. 1688 (“Act”), as amended. Pursuant to the Act, the Agency isauthorized and empowered, among other things, to finance the construction and rehabilitation of housing units forpersons and families of low and moderate income or the elderly. Bonds issued under the provisions of the Act arenot a debt or liability of the Commonwealth of Pennsylvania or any of its political subdivisions or a pledge of thefaith and credit of the Commonwealth of Pennsylvania or of any of its political subdivisions.

The Act was amended to authorize the Agency to make or purchase loans to finance the purchase, construction,improvement or rehabilitation of owner-occupied single-family residences, and to finance the construction and reha-bilitation of housing units without requiring the housing units to be subsidized or assisted by a federal governmentprogram.

2. Summary of Significant Accounting Policies

Basis of AccountingThe financial statements of the Agency are reported using the economic resources measurement focus and the accru-al basis of accounting. Revenues are recorded when earned, regardless of when the cash flow takes place. Expensesare charged as incurred, except those directly related to mortgage loan or program originations, which are deferred,netted against fee income for mortgage loans originated, and amortized over the contractual life of the related mort-gage loan or program.

The Agency is required to follow all statements of the Governmental Accounting Standards Board (GASB). GASBStatement No. 20, Accounting and Reporting for Proprietary Funds and Other Governmental Entities that Use ProprietaryFund Accounting, was issued to give guidance in determining Generally Accepted Accounting Principles for govern-mental proprietary funds. It provides that all proprietary fund activities follow all Financial Accounting StandardsBoard (FASB) Statements issued prior to November 30, 1989, unless they conflict with GASB standards. It also pro-vides that the governmental unit must elect whether to follow FASB Statements after that date. The Agency has elect-ed not to follow FASB pronouncements issued after November 30, 1989.

Reporting EntityThe Agency is a component unit of the Commonwealth of Pennsylvania as described in GASB Statement No. 14, asamended by GASB Statement No. 39, “Determining whether Certain Organizations are Component Units.” These finan-cial statements are discretely presented as part of the Commonwealth’s financial statements.

Description of FundsThe accounts of the Agency are organized based on separate enterprise funds, each of which is considered a sepa-rate accounting entity with a separate set of self-balancing accounts that comprise assets, liabilities, net assets, rev-enues and expenses. Within each fund, there are accounts required by the respective bond resolutions. Certainassets under the respective bond resolutions are restricted and are not available for any other purpose other than asprovided.

General Fund— The General fund is utilized to record transactions that are not directly related to a specific bondresolution. All Agency expenses are recorded in this fund except for specific program expenses that are chargedto the loan-related funds.

Multifamily Program— Multifamily Program transactions relate to the construction, rehabilitation and perma-nent financing of multifamily rental housing developments generally designed for persons and families of lowand moderate income or the elderly.

Single Family Program— Single Family Program transactions relate to the purchase of mortgage loans forowner-occupied single-family residences for persons and families of low and moderate income.

Insurance Fund— Through the Insurance Fund, the Agency provides primary mortgage insurance coverage forsingle-family mortgage loan participants that are unable to obtain insurance from other sources.

Homeowners Emergency Mortgage Assistance Program (“HEMAP”)— HEMAP was created by Act 91 of theGeneral Assembly to provide emergency mortgage assistance loans to mortgagors facing foreclosure because ofcircumstances beyond their control. The Agency administers this program through Commonwealth appropria-tions, investment earnings and loan repayments.

Cash and Cash Equivalents

Cash includes cash on hand and cash deposits. Cash equivalents are investments with a maturity of three monthsor less when purchased and include short-term highly liquid money market funds, which are readily convertible toknown amounts of cash.

Investments

In accordance with GASB Statement No. 31, “Accounting and Financial Reporting for Certain Investments and ExternalInvestment Pools,” investments are reported at fair value on the balance sheet, with changes in fair value recognizedin investment income in the statement of revenues, expenses, and changes in net assets. Fair value of investmentsecurities is determined upon values provided by quoted market prices and external investment managers.

Mortgage Loans ReceivableMortgage loans receivable are carried at amounts disbursed or advanced plus accrued interest, and fees, less collec-tions, mortgage loan discounts and allowance for loan losses, if any. Current portions of loans receivable representsthe contractual amount due within the next fiscal year.

Allowance for Potential Loan LossesThe allowance for loan losses is determined based upon management’s evaluation of mortgage loans receivable andconstruction advances. Factors considered by management include the estimated fair market values of the proper-ties that represent collateral, the amount of mortgage insurance to be received, if any, the past experience and finan-cial condition of the borrowers, and the economy. While management uses available information to recognize loss-es on loans, future additions to the allowance may be necessary based on changes in economic conditions. Additionsto the allowance are provided by charges to expense.

Capital AssetsBuilding, furniture and equipment are capitalized at costs and depreciation is provided on the straight-line basis overthe estimated useful lives, which are thirty years for the building and from three to ten years for furniture and equip-ment. The capitalization floor is $1 for all categories of capital assets. Maintenance and repairs are charged to oper-ating expense.

Real Estate OwnedDuring the normal course of business, the Agency acquires single-family real estate as a result of non-performingloans. The outstanding mortgage balances attributable to these properties, stated at cost, are included in mortgageloans receivable on the balance sheet. In addition to potential recoveries from mortgagors, these non-performingloans include amounts recoverable through both federal Housing and Urban Development Agency and private mort-gage insurance.

Derivative Financial InstrumentsThe Agency enters into various interest rate swap agreements in order to manage risk associated with interest on itsbond portfolio. As currently allowed under accounting principals generally accepted in the United States, the Agencydoes not record the fair value or changes in the fair value of interest rate swaps in its financial statements.

Advances To and From Other Funds and Interfund TransfersTo meet liquidity requirements of individual funds, the Agency transfers funds to and from the separate enterprisefunds. The Agency makes interfund transfers to the extent that such transfers are not required to meet the Agency’sdebt obligations and if such transfers are not in violation of the terms of bond resolutions or indentures.

Operating and Nonoperating Revenues and ExpensesThe Agency was created with the authority to issue bonds to the investing public in order to create a flow of capitalthrough the Agency into mortgage loans to qualified housing sponsors and to certain individuals. The Agency’s pri-mary purpose is to borrow funds in the bond market and to use those funds to make single-family and multifamilymortgages and loans. Its primary operating revenue is derived from the interest income and fees from those mort-gages and loans. Revenues from mortgages and loans and externally funded programs are recorded as operating rev-enues. Primary operating expenses are the interest expenses on outstanding debt. Revenues and expenses that donot contribute to the Agency’s primary purpose are considered nonoperating.


Interest IncomeInterest income is recognized over the remaining time to maturity of investment securities, mortgage loans receiv-able and construction advances based upon the constant yield method. Multifamily and Single Family Programloans more than 180 days delinquent in scheduled payments are considered nonperforming loans which result inthe cessation of recognition of additional interest on such loans.

Pass-through GrantsThe Agency follows GASB Statement No. 24, “Accounting and Financial Reporting for Certain Grants and OtherFinancial Assistance.” Statement No. 24 requires that all cash pass-through grants received by a governmental entitybe reported in its financial statements. The effect of applying these provisions is to increase both operating incomeand expense when eligible expenses occur.

Debt Issuance Costs, Bond Discounts and Other Bond Related CostsThe Agency issues bonds to provide capital for its mortgage programs and other uses consistent with its mission.Bonds are recorded at cost plus accreted interest and premiums, less discounts and deferred debt refunding losses.Discounts and premiums are amortized using the effective interest method. Deferred debt refunding losses are amor-tized over the shorter of the remaining life of the old debt, or the remaining life of the new debt. The Agency capi-talizes costs related to bond issuances to deferred assets and amortizes these costs to interest expense over the con-tractual life of the bonds using the effective interest method.

Pension Plan and Other Post Employment BenefitsGASB Statement No. 27, “Accounting for Pensions by State and Local Governmental Employers,” amended by GASBStatement No. 50, “Pension Disclosures—an amendment of GASB Statements No. 25 and No. 27,” requires the Agency tomeasure and disclose amounts for annual pension cost and net pension obligations.

GASB Statement No 45 “Accounting and Financial Reporting by Employers for Postemployment Benefits OtherThan Pension” requires the Agency to establish standards for the measurement, recognition and disclosure of OPEBexpenses and related liabilities (assets) and note disclosures in the financial reports.

Compensated AbsencesAgency employees are granted vacation and illness pay in varying amounts as services are provided. Employees mayaccumulate, subject to certain limitations, unused vacation and illness pay earned and, upon retirement, termina-tion or death, may be compensated for certain amounts at their current rate of pay. Vacation and illness pay is rec-ognized as an expense in the amount earned each year.

Net AssetsNet assets comprise the excess of revenues over expenses from operating income, non-operating revenues andexpenses. Net assets are classified in the following three components:

Invested in Capital Assets, Net of Related Debt— This component consists of capital assets, net of accumulat-ed depreciation and reduced by the outstanding balances of any bonds or other borrowings that are attributa-ble to the acquisition, construction or improvement of those assets.

Restricted by Debt Covenants— The Agency has restricted net assets in amounts sufficient to meet requireddebt service and operating expenses as defined by each bond resolution.

Unrestricted— This component of net assets consists of net assets that do not meet the definition of restrictedor invested in capital assets, net of related debt. This component includes net assets that may be designated forspecific purposes by the Members of the Board.

When both restricted and unrestricted resources are available in a fund, it is the Agency’s policy to spend restrictedresources to the extent allowed and only spend unrestricted resources when needed.

Pending Governmental Accounting Standards Board PronouncementsIn June 2008, the GASB issued Statement 53, “Accounting and Financial Reporting for Derivative Instruments.” Thisstatement is intended to improve how governmental entities report information about derivative instruments—finan-cial arrangements used by governments to manage specific risks or make investments—in their financial statements.The Statement specifically requires governments to measure most derivative instruments at fair value in their finan-

cial statements that are prepared using the economic resources measurement focus and the accrual basis of account-ing, and also addresses hedge accounting requirements. PHFA is required to adopt GASB Statement No. 53 for its2010 financial statements. The Agency is currently evaluating the impact of implementing Statement No. 53 on itsfinancial statements.

Recently Adopted Accounting StandardsGASB Statement No. 45, “Accounting and Financial Reporting by Employers for Postemployment Benefits Other ThanPension.” This statement establishes standards for the measurement, recognition, and display of other postemploy-ment benefit expenses and related liabilities, note disclosures, and, if applicable, required supplementary informa-tion (RSI) in the financial reports of state and local governmental employers. The financial statements incorporatethe changes required by Statement No. 45, effective for the year ended June 30, 2008, see note 11.

GASB Statement No. 50, “Pension Disclosures—an amendment of Government Accounting Standards Board Statements No.25 and No. 27.” This Statement more closely aligns the financial reporting requirements for pensions with those forother postemployment benefits (OPEB) and, in doing so, enhances information disclosed in notes to financial state-ments or presented as required supplementary information (RSI) by pension plans and by employers that providepension benefits. Note 10 to the financial statements incorporate the changes required by Statement No. 50, effec-tive for the year ended June 30, 2008.

ReclassificationsCertain reclassifications have been made in the June 30, 2007 financial statements to conform to the June 30, 2008presentation.

3. Deposits and Investments

DepositsThe Agency has a policy that cash and cash equivalents must be held in insured depositories satisfactory to theAgency and must be fully collateralized. Cash and cash equivalents consist of demand deposits, time deposits, cashheld in trust and Money Market Funds. A summary of the Agency’s cash and cash equivalents is shown below:

June 30, June 30,2008 2007

Restricted cash and cash equivalents $ 84,185 $ 83,060 Unrestricted cash and cash equivalents 638,965 749,170 Carrying amount of cash and cash equivalents $ 723,150 $ 832,230 Bank balance of cash and cash equivalents $ 722,897 $ 830,612

Note: Restricted cash and cash equivalents represent the amount of cash deposits restricted by bond resolutions.

Custodial Credit RiskThe Agency assumes levels of custodial credit risk for its cash and cash equivalents with financial institutions.Custodial credit risk is the risk that, in the event of a bank failure, the Agency’s cash and cash equivalents may notbe returned. The Agency has not established a formal custodial credit risk policy for its cash and cash equivalents.

At June 30, 2008, the carrying value of the Agency’s cash deposits equaled $21,756 and the bank balance equaled$28,473, of which $28,088 was uninsured and collateralized in accordance with Act 72 of the Commonwealth ofPennsylvania, with securities held by the pledging financial institution, its trust department or agent, but not in theAgency's name. The difference between total cash and cash equivalents and total deposits represents Money MarketFunds equaling $701,394, with a bank balance of $694,424, that does not expose the Agency to custodial credit risk.

InvestmentsThe investment policies of the Agency are governed by Commonwealth statutes and contractual provisions con-tained in the bond trust indentures. The primary objectives of the Agency’s investment activities are to provide suit-able returns, preserve principal, meet liquidity needs and to further the purposes of the Agency.

Interest Rate RiskThe Agency’s investment policy does not limit investment maturities as a means of managing its exposure to fairvalue losses arising from increasing interest rates. The Agency has elected to use the segmented time distributionmethod of disclosure for its interest rate risk.

66 67

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As of June 30, 2008, the Agency held the following investments with the listed maturities:Investment Maturities (in years)

Investment Type Fair Less MoreValue than 1 1–5 6–10 than 10

U.S. Government Agency Securities* $ 294,933 $ 8,189 $ 251,255 $ 2,902 $ 32,587U.S. Treasury Securities* 19,076 32 – 19,044 –Corporate bonds 10,216 2,000 6,258 1,958 –

$ 324,225 $ 10,221 $ 257,513 $ 23,904 $ 32,587

In addition to the amounts listed above, at June 30, 2008 the Agency held investments in Money Market Funds witha fair value of $701,394, reported as cash equivalents, all with maturities of less than 90 days.

As of June 30, 2008, the Agency had investments in various mortgage-backed securities, which substantially includ-ed $54,805, $86,616 and $57,129 invested in the Federal National Mortgage Association (FNMA), Federal HomeLoan Mortgage Corporation (“Freddie Mac”) and the Federal Home Loan Bank, respectively. These securities, listedas U.S. Government Agency Securities above, are sensitive to interest rate changes because, for example, borrowershave the option to prepay their mortgages.

Credit RiskThe Agency mitigates its credit risk by limiting investments to those permitted in the deposit and investment poli-cies, diversifying the investment portfolio and pre-qualifying firms with which the Agency administers its investmentactivities. As of June 30, 2008, the Agency’s exposure to credit risk was as follows (ratings by Moody’s InvestorsService):

Quality Ratings

FairInvestment Type Value Aaa Aa A Baa Unrated*

U.S. Government Agency Obligations $ 294,933 $ 229,478 $ – $ – $ 7,772 $ 57,683U.S. Treasury Securities 19,076 – – – 19,076Corporate bonds 10,216 – 1,950 6,266 – 2,000

$ 324,225 $ 229,478 $ 1,950 $ 6,266 $ 7,772 $ 78,759

*Unrated debt investments are securities that are not rated by the NRSROs. Investments guaranteed by the full faithof the U.S. Government, such as U.S. Treasury Securities, are not considered to be subject to credit risk and do notrequire disclosure of credit quality

Of the $701,394 fair value in Money Market Funds, reported as cash equivalents, $685,114 is rated Aaa by Moody’sInvestors Service and $16,280 is not rated.

Concentration of Credit RiskConcentration risk is the risk of loss attributed to the magnitude of the Agency’s investment in a single investmentissuer. Concentration limits are not established in the bond indentures and governing agreements for trust invest-ments. Investments in any one issuer that represent 5% or more of total investments as of June 30, 2008 were as fol-lows:

Issuer Total Investments Percent of Total

Federal Home Loan Mortgage Corporation $86,616 8% Federal Home Loan Bank 57,129 6% Federal National Mortgage Association 54,805 5% Federal Farm Credit Banks 53,958 5%

Custodial Credit RiskCustodial credit risk is the risk that, in the event of failure of the custodian or counterparty holding the investment,the Agency will not be able to recover the value of the investment. The Agency has not established a formal custodi-al credit risk policy for its investments. All of the Agency’s $324,225 investment balance at June 30, 2008 is held by

bank trust departments, acting as the counterparty, in book entry only form in the Agency’s name and accordinglywas subject to custodial credit risk. The total investment in Money Market Funds equaling $701,394, reported ascash equivalents, does not expose the Agency to custodial credit risk.

4. Mortgage Loans ReceivableMortgage loans receivable at June 30, 2008 and 2007 consisted of the following:

June 30, June 30,2008 2007

Multifamily mortgage loans $ 732,889 $ 714,585Single Family mortgage loans 3,646,407 3,240,913HEMAP loans 89,275 86,988

4,468,571 4,042,486 Add: Loan discounts 25,072 21,515

Less:Allowance for potential loan losses 212,565 204,787 Mortgage receivable, net 4,281,078 3,859,214Less current portion 99,170 91,113Long-term portion $ 4,181,908 $ 3,768,101

Multifamily mortgage loans receivable are collateralized by first mortgages on the related properties. The federal gov-ernment provides insurance to certain developments included in the Multifamily program, as well as subsidizes cer-tain developments through its Section 8 Program. Construction advances are recorded as mortgage loans receivable.Amortization of the advances commences upon substantial completion and occupancy of the development.Insurance for the Single Family Program is provided by commercial companies and self-insurance through theAgency’s Insurance Fund. Primary insurance is required on all single-family mortgage loans where the loan princi-pal amount exceeds 80% of the lesser of the purchase price or the initial appraised value of the property. It is theeligible borrowers’ responsibility to bear the cost of primary insurance.

The Agency provides primary mortgage insurance coverage for certain single-family mortgage loans through theInsurance Fund, which ranges from 20% to 30% (depending on the loan-to-value ratio at origination) of the unpaidprincipal balance. At June 30, 2008 and 2007, the total loans covered under this program were $52,518 and $65,742,respectively.

Changes in the Insurance Fund’s claim liability amounts were as follows: June 30, June 30,2008 2007

Beginning Balance $ 868 $ 709 Current year estimated claims payable 600 400 Claim payments (130) (241)Total claim liability 1,338 868 Less current portion 301 258 Long-term portion $ 1,037 $ 610

The claims liability is based on the requirements of the GASB, which requires that the basis for estimating the liabil-ity for unpaid claims, including the effects of specific incremental claim adjustment expenses, salvage, and subroga-tion and whether other allocated or unallocated claim adjustment expenses are included.

Changes in the allowance for potential loan losses for the Multifamily Program, Single Family Program and HEMAPwere as follows at June 30, 2008 and 2007:


Multifamily Single Family HEMAP Totals

2008 2007 2008 2007 2008 2007 2008 2007

Beginning Balance $ 161,818 $155,979 $ 4,265 $ 3,433 $ 38,704 $ 37,525 $204,787 $196,937 Loss Provision 8,042 6,200 1,400 1,600 8,765 7,711 18,207 15,511Net Charge-offs (2,042) (361) (1,499) (768) (6,888) (6,532) (10,429) (7,661)Balance, June 30 $ 167,818 $ 161,818 $ 4,166 $ 4,265 $ 40,581 $ 38,704 $212,565 $204,787

5. Servicing PortfolioThe Agency receives fee income in the General Fund for servicing mortgage loans for investors. Since these loans arenot reported on the balance sheet of the Agency, there is no exposure of loss to the Agency relating to these loans.The total amount of loans serviced for others under servicing agreements is $121,734 and $137,662 at June 30, 2008and 2007, respectively.

6. Capital AssetsCapital assets activity for the year ended June 30, 2008 consisted of:



Non depreciable capital assets:Land $ 2,454 $ – $ – $ 2,454

Total non depreciable capital assets 2,454 – – 2,454 Depreciable capital assets:Building and Improvements 29,647 100 6 29,741 Computers and Equipment 5,452 582 – 6,034Furniture and Fixtures 4,276 79 6 4,349 Automobiles 126 – 14 112

Total depreciable capital assets 39,501 761 26 40,236 Less accumulated depreciation:Building and Improvements 2,523 612 – 3,135Computers and Equipment 3,174 453 - 3,627Furniture and Fixtures 802 247 5 1,044 Automobiles 45 16 15 46

Total accumulated depreciation: 6,544 1,328 20 7,852

Total depreciable capital assets, net 32,957 (567) 6 32,384

Capital Assets, net $ 35,411 $ (567) $ 6 $ 34,838

Capital assets activity for the year ended June 30, 2007 consisted of: Beginning EndingBalance Balance


Non depreciable capital assets:Land $ 2,060 $ 394 $ – $ 2,454

Total non depreciable capital assets 2,060 394 – 2,454 Depreciable capital assets:Building and Improvements 29,075 588 16 29,647 Computers and Equipment 5,269 220 37 5,452 Furniture and Fixtures 4,278 119 121 4,276 Automobiles 61 68 3 126

Total depreciable capital assets 38,683 995 177 39,501 Less accumulated depreciation:Building and Improvements 1,901 622 – 2,523 Computers and Equipment 2,758 452 36 3,174 Furniture and Fixtures 611 263 72 802 Automobiles 39 6 – 45

Total accumulated depreciation: 5,309 1,343 108 6,544

Total depreciable capital assets, net 33,374 (348) 69 32,957

Capital Assets, net $ 35,434 $ 46 $ 69 $ 35,411

Depreciation expense for June 30, 2008 and 2007 totaled $1,328 and $1,343, respectively.

7. Bonds and Notes PayableBonds issued to provide capital for mortgage programs and other uses have the full faith and credit of the Agencypledged for repayment of the bonds issued. The bonds are secured, as described in the applicable agreements by therevenues, investments, mortgage loans and others assets in the fund and accounts established by the respective secu-rity agreements. A substantial portion of the assets of the Agency is pledged to the outstanding obligations of theAgency.

Bonds issued and outstanding for the General Fund are as follows:Final Amounts Outstanding


Variable Rate Building Development Bonds 2034 $ 20,000 $ 20,000 Unamortized bond discount (76) (79)Total bonds payable 19,924 19,921Less current portion – –Long-term portion $ 19,924 $ 19,921

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Bonds issued and outstanding for the Multifamily Program are as follows:Final Amounts Outstanding


Multi-Family Development BondsIssue 1990A, 7.5% 2023 $ 1,595 $ 1,639

Subordinate Limited Obligation BondsIssue 1995, 5.50-6.15% 2021 3,228 3,397

Rental Housing Refunding BondsSeries 2008A/B, variable rate 2021 73,740 79,550 Series 2008C/D, variable rate 2020 107,050 117,550

Residential Development BondsIssue 2002 (refunding), 1.80%-5.25% 2024 29,535 32,980

Multifamily Development BondsIssue 1989B, 8.25% 2019 365 385Issue 1993A (refunding), 5.38% 2022 10,560 11,125 Issue 1993F, 6.53% 2019 5,020 5,325Issue 1997G.7.36% 2027 9,340 9,555Issue 1998H, 6.3% 2028 15,345 15,705Issue 2003 (refunding), 3.25-4.80% 2019 13,875 18,150Issue 2005A, 4.00-5.00% 2025 20,615 21,355Issue 2005K, variable rate 2036 26,350 26,885Issue 2007L, 4.20% 2009 12,600 12,600

329,218 356,201 Unamortized bond discount (226) (3)Unamortized deferred loss of refundings (5,439) (4,753)Total bonds payable 323,553 351,445 Less current portion 27,850 27,238 Long-term portion $ 295,703 $ 324,207

Bonds issued and outstanding for the Single Family Program are as follows:Final Amounts Outstanding


Single Family Mortgage RevenueSeries 1996 - 47, 4.20-6.75% 2027 $ 4,100 $ 5,290 Series 1996 - 52, 4.40-7.00% 2027 – 1,560Series 1996 - 53, 4.20-6.15% 2027 – 1,545 Series 1997 - 54, 5.37-7.22% 2028 870 2,790 Series 1997 - 55, 3.70-5.75% 2013 – 2,145Series 1997 - 56, 4.00-6.15% 2028 – 2,015Series 1997 - 57, 4.30-6.15% 2029 – 1,015 Series 1997 - 58, 4.30-7.81% 2028 1,795 2,665 Series 1997 - 59, 4.00-5.15% 2029 1,360 7,655 Series 1997 - 60, 4.00-7.69% 2028 1,900 2,320 Series 1997 - 61, 4.00-6.80% 2029 39,540 47,955 Series 1998 - 62, 4.25-6.40% 2029 50,385 51,035 Series 1998 - 63, 3.95-5.50% 2030 50,178 53,949 Series 1998 - 64, 3.65-5.25% 2030 51,767 52,910 Series 1999 - 65, 3.25-5.25% 2030 50,270 54,605 Series 1999 - 66, 4.05-6.95% 2031 29,040 41,165 Series 1999 - 67, 4.05-7.51% 2030 37,380 43,270 Series 1999 - 68, 4.30-7.02% 2031 21,910 26,230 Series 2000 - 69, 4.35-6.25% 2031 36,125 36,960Series 2000 - 70, 4.30-5.90% 2032 35,165 36,780

Final Amounts OutstandingMaturity June 30,

Description of Bonds as Issued Date 2008 2007

Series 2001 - 72, 3.25-5.35% 2032 157,970 167,580Series 2002 - 73, 1.75-5.45% 2033 127,515 155,110Series 2002 - 74, variable rate 2032 98,530 98,920 Series 2002 - 75, variable rate 2033 90,555 92,535Series 2003 - 77, variable rate 2033 82,405 87,900Series 2003 - 78, variable rate 2025 59,885 67,345Draw Down Series 2003, variable rate 2008 – 60,000 Series 2003 - 79, variable rate 2034 81,765 88,050Series 2003 - 80, variable rate 2024 – 3,855 Series 2004 - 81, variable rate 2034 87,610 91,155 Series 2004 - 82, variable rate 2034 85,835 90,855 Series 2004 - 83, variable rate 2035 85,540 118,610 Series 2004 - 84, variable rate 2034 88,650 92,980 Series 2004 - 85, variable rate 2035 88,860 92,565 Series 2004 - 86, variable rate 2035 96,185 98,835 Series 2005 - 87, variable rate 2035 93,020 96,590 Series 2005 - 88, variable rate 2037 91,170 96,565 Series 2005 - 89, variable rate 2035 115,780 120,130 Series 2005 - 90, variable rate 2036 120,320 123,090 Series 2005 - 91, variable rate 2036 122,805 154,020 Series 2006 - 92, variable rate 2036 123,635 124,825 Series 2006 - 93, variable rate 2037 117,700 123,475 Series 2006 - 94, variable rate 2037 117,850 123,800 Series 2006 - 95, variable rate 2037 187,570 198,195 Series 2006 - 96, 3.60-5.72% 2037 188,870 194,975Series 2007 - 97, variable rate 2037 197,510 199,415 Series 2007 - 98, variable rate 2037 196,855 199,240Series 2007 - 99, variable rate 2038 198,950 –Series 2007 - 100, variable rate 2038 199,975 – Series 2007 - 101, variable rate 2038 59,625 – Series 2007 - 102, variable rate 2038 150,000 – Note Purchase Agreement - 2.5% 2017 2,500 –

3,927,225 3,634,474 Unamortized bond discount (11,823) (9,549)Unamortized deferred loss of refundings (17,649) (19,735)

Total bonds and notes payable 3,897,753 3,605,190Less current portion 88,390 137,455 Long-term portion $ 3,809,363 $ 3,467,735

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The approximate principal and interest payments required on outstanding bonds and notes over the next five yearsand thereafter are as follows:

Fiscal General Fund Multi-Family Program Single Family Program

Year Ending Principal Interest Principal Interest Principal Interest Total

2009 $ – $ 302 $ 27,850 $ 9,647 $ 88,390 $ 138,360 $ 264,549 2010 – 302 41,417 8,708 91,975 135,482 277,884 2011 – 302 29,941 7,733 91,270 131,853 261,099 2012 – 302 28,522 6,996 94,215 128,152 258,187 2013 – 302 27,519 6,279 93,135 124,234 251,469 2014-2018 1,495 1,477 100,409 22,029 576,175 559,365 1,260,950 2019-2023 2,260 1,332 43,925 10,446 698,288 436,137 1,192,388 2024-2028 2,790 1,146 18,740 3,933 814,302 303,652 1,144,563 2029-2033 3,455 916 7,200 1,033 802,545 162,507 977,656 2034-2038 10,000 151 3,695 147 556,135 42,651 612,779 2039-2043 – – – – 20,795 213 21,008

$ 20,000 $ 6,532 $ 329,218 $ 76,951 $3,927,225 $2,162,606 $6,522,532

Early Extinguishment of Debt During the years ended June 30, 2008 and 2007, because of the prepayment of certain mortgages, the Agency repurchased or redeemed, prior to their scheduled maturity, the principal amount of certain of its bonds, totalingapproximately $51,781 and $35,227, respectively. Net losses of $229 and $280 on early extinguishments have beenrecorded as a non-operating expense for years ended June 30, 2008 and 2007, respectively. Losses arise because ofimmediate recognition of deferred bond issuance costs and discounts that would have been amortized over the lifeof the applicable bond issues had they not been retired.

Current Refundings During the years ended June 30, 2008 and 2007, because of new debt proceeds, the Agency refunded the principalamount of certain Single Family Bonds, totaling approximately $160,959 and $231,138, respectively. Although thecurrent refunding resulted in the recognition of a deferred loss of $484 and $1,196 for the years ended June 30, 2008and 2007, respectively, the Agency in effect reduced its aggregate debt service payments by $12,398 and $12,534over the next 30 years and obtained an economic gain (difference between the present value of the old debt and newdebt service payments) of $7,076 and $6,210 for the years ended June 30, 2008 and 2007, respectively.

Advance Refunding The Agency effected an advanced refunding where the proceeds of issued bonds were used to defease outstandingdebt of the Agency. The result is an in-substance defeasance whereby the Agency purchased securities, which weredeposited into an irrevocable trust with an escrow agent to provide for future debt service payments on the refund-ed bonds. The Agency defeased Multifamily Residential Development Bonds, Issue H in prior years. At June 30, 2008and 2007, the defeased principal outstanding is $2,725 and $3,740, respectively. Issue M, reported last year, maturedon July 01, 2007.

Conduit Debt Obligations The Agency issued series 2003J Limited Obligation Multifamily Development Bonds to provide for the financialassistance of a local public housing authority. The bonds are secured by the property financed and is payable sole-ly from payments received on the underlying loans. The bonds are special and limited obligations of the Agency,which are considered conduit debt obligations by GASB. The bonds do not constitute a debt or pledge of the faithand credit of the Agency and, accordingly, has not been reported in the accompanying financial statements. At June30, 2008 and 2007, the Limited Obligation Multifamily Development Bonds outstanding balance was $10,621 and$10,872, respectively.

Bond Covenants Minimum capital reserves have been established by the Agency to meet the requirements of bond covenants. Thecapital reserve requirement for certain Multi-Family bonds requires that a one-year debt service minimum balance

be maintained at all times. The capital reserve requirement for Single Family bonds must be equal to at least 3% ofthe aggregate principal amount of all Single Family bonds outstanding plus one million dollars. Bond covenantrequirements regarding restricted cash and net assets were met at the year-end.

Note Purchase Agreement During the fiscal year, the Agency entered into a loan agreement with PNC bank for an amount up to $5,000 to fundthe Homeowners' Equity Recovery Opportunity Loan Program. The agreement resulted in 2.5% annual fixed inter-est payable beginning in the year 2008 through year 2017. At June 30, 2008, the principal outstanding balance is$2,500. These liabilities are recorded as part of the Single Family Program.

8. Long-Term LiabilitiesLong-term liability activities for the year ended June 30, 2008 were as follows:

Balance Balance Due WithinJuly 01, 2007 Additions Reductions June 30, 2008 One Year

Bonds and notes payable $ 4,010,676 $ 1,056,211 $ 790,444 $ 4,276,443 $ 116,240Net premium (discount) on bonds (9,631) (3,353) (859) (12,125) – Deferred refunding loss (24,489) (2,108) (3,509) (23,088) – Bonds and notes payable, net 3,976,556 1,050,750 786,076 4,241,230 116,240

Net OPEB obligation – 3,041 – 3,041 –Escrow 164,143 205,139 200,381 168,901 61,132 Other liabilities 161,248 349,198 335,515 174,931 - Escrow and other liabilities 325,391 557,378 535,896 346,873 61,132

Total net long-term liabilities $ 4,301,947 $ 1,608,128 $ 1,321,972 $ 4,588,103 $ 177,372

Long-term liability activities for the year ended June 30, 2007 were as follows:Balance Balance Due Within

July 01, 2006 Additions Reductions June 30, 2007 One Year

Bonds payable $ 3,446,835 $ 929,535 $ 365,694 $ 4,010,676 $ 164,693Net premium (discount) on bonds (8,913) (2,377) (1,659) (9,631) – Deferred refunding loss (26,794) (1,196) (3,501) (24,489) –Bonds and notes payable, net 3,411,128 925,962 360,534 3,976,556 164,693

Escrow and other liabilities 310,726 523,443 508,778 325,391 56,209

Total net long-term liabilities $ 3,721,854 $ 1,449,405 $ 869,312 $ 4,301,947 $ 220,902

9. Restricted and Unrestricted Net Assets

General Fund The Members of the Board have designated all of the General Fund unrestricted net assets for the following purpos-es at June 30, 2008 and 2007:

June 30, June 30,2008 2007

Single Family Insurance Fund $ 16,500 $ 16,500Multifamily Insurance Fund 10,000 10,000Housing Initiatives 11,850 11,850 Home Buyer Counseling 6,500 6,500 Home Choice Program 47,031 47,150 Homeless Auxiliary Initiative 1,593 1,593

$ 93,474 $ 93,593

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The Single Family Insurance Fund is for any special hazard losses on single-family mortgages not covered by otherinsurance or losses arising out of default on mortgage loans funded with the proceeds of the Series C and subse-quent issues.

The Multifamily Insurance Fund is for any event where a loss occurs on any of the multifamily developments forwhich the Agency acts as an insurer or coinsurer.

Housing Initiatives provide below market financing for Multifamily and Single Family special developments financedby the Agency.

Home Buyer Counseling funds home buying education to first time homebuyers.

The Home Choice Program funds the development of single-family homes in urban communities.

Homeless Auxiliary Initiative provides funding to homeless shelters and those organizations that support shelters.

Multifamily Program Restrictions on the Multifamily Program net assets at June 30, 2008 and 2007:

June 30, June 30,2008 2007


Net assets restricted by debt covenants are required under certain bond indentures, whose proceeds are used to fundthe Agency’s multifamily programs.

The Members of the Board have designated a portion of Multifamily Program unrestricted net assets for the follow-ing purposes at June 30, 2008 and 2007:

June 30, June 30,2008 2007

PennHOMES Program $ 137,000 $ 137,000 Senior Housing with Supportive Services 4,000 4,000 Supportive Services 2,300 2,300 Preservation 3,000 3,000

$ 146,300 $ 146,300

The PennHOMES Program, funded by unrestricted multifamily proceeds, lowers development costs for apartmentdevelopments financed by the Agency.

Senior Housing with Supportive Services provides funding for rental housing and specialized resident services forelderly residents.

Supportive Services provides multifamily developments with funds for resident services.

Preservation represents a joint venture with the National Housing Trust to preserve and improve affordable multi-family homes for low and moderate-income use. Preservation saves multifamily developments that are at risk of con-version to market-rate housing by resolving the problems of physical deterioration and financial and social distress.

Single Family Program Restrictions on the Single Family Program net assets at June 30, 2008 and 2007:

June 30, June 30,2008 2007


Net assets restricted by debt covenants are required under certain bond indentures, whose proceeds are used to fundthe Agency’s Single Family loan programs, including the Single Family Insurance Fund which has been establishedat not less than 1% of anticipated mortgages to be originated on Issues I and subsequent issues, and held by atrustee.

The Members of the Board have designated a portion of Single Family Program unrestricted net assets for the fol-lowing purposes at June 30, 2008 and 2007:

June 30, June 30,2008 2007

Closing Cost Subsidy Program $ 14,750 $ 14,750 Additional Single Family Insurance Program 2,455 2,455

$ 17,205 $ 17,205

The Closing Cost Subsidy program assists qualified single-family homebuyers with the initial costs incurred at theinception of a mortgage.

Additional Single Family Insurance Program covers risk sharing agreement primary mortgage insurance losses in theevent of default on single-family mortgage loans.

Insurance Fund The Members of the Board have designated the Insurance Fund’s unrestricted net assets for the following purposesat June 30, 2008 and 2007:

June 30, June 30,2008 2007

Risk retention $ 48,298 $ 45,009

Risk Retention provides private single-family mortgage insurance.

HEMAPThe Members of the Board have designated HEMAP’s unrestricted net assets for the following purposes at June 30,2008 and 2007:

June 30, June 30,2008 2007

Homeowners Emergency Mortgage Assistance Program $ 42,530 $ 43,760

The Homeowners Emergency Mortgage Assistance Program makes available assistance loans to mortgagees facingforeclosure because of circumstances beyond their control.

10. Pension Plans

Plan Description As of June 30, 2008, substantially all eligible full-time employees are participants in the Pennsylvania HousingFinance Agency Employees’ Retirement Plan (“Plan”) or Government Excess Benefit Plan (“Excess Plan”), which areboth noncontributory defined benefit, single employer plans. The Plans do not issue stand-alone financial state-ments.

Full-time employees become eligible for participation in the Plan after completion of one year of service. A partici-pant’s benefits vest upon the completion of five years of service. Under the provisions of the Plan, participants withprior military service may receive credit for their time of service providing they contribute funds equivalent to thecost of their pension benefits accumulated during their military service. A participant is eligible for normal retire-ment after attainment of age 65, or age 55 and completion of 30 years of service, or at any age after completion of35 years of service. The Plan also provides early and late retirement provisions and death and disability benefits. Thenormal retirement pension is payable monthly during the participant’s lifetime with payments ceasing upon the par-ticipant’s death. Contribution requirements and benefit provisions of the Plan and Excess Plan are established andmay be amended by the Members of the Board.

All participants in the Plan who will receive retirement benefits in an amount that is less than the benefits otherwisepayable under the terms of the Plan due to limitations on benefits imposed by IRC Section 415 shall automaticallyparticipate in the Excess Plan. Participation in the Excess Plan will cease for any year in which the retirement bene-fits from the Plan do not exceed the limitation imposed by IRC Section 415. Pension payments under the ExcessPlan are paid in the same form as the pension benefits payable under the Plan.

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Funding Policy The Plan’s funding policy provides for actuarially determined periodic contributions at rates that, for individualemployees, increase gradually over time so that sufficient assets will be available to pay benefits when due.

Annual Pension Cost and Net Pension Asset The Agency’s annual pension costs and net pension assets of the Plan are as follows:

June 30, June 30,2008 2007

Annual required contribution (ARC) $ 2,364 $ 2,335Annual pension cost 2,364 2,335 Contributions made (2,600) (2,400) Increase in net pension asset (236) (65) Net pension asset beginning of year (899) (834) Net pension asset end of year $ (1,135) $ (899)

Three-Year Trend Information for the Plan:Calendar Year Ending Annual Pension Percentage of Net Pension

Cost (APC) APC Contributed (Asset)

December 31, 2005 $ 1,482 97.8% $ (834)December 31, 2006 2,335 102.8% (899)December 31, 2007 2,364 110.0% (1,135)

Funded Status and Funding Progress As of January 01, 2008 and 2007, the most recent actuarial valuation dates, the funded status of the Plan was as follows:

ActuarialAccrued UAAL as a

Actuarial Liability Unfunded PercentageActuarial Value of (AAL)- AAL Funded Covered of CoveredValuation Assets Entry Age (UAAL) Ratio Payroll PayrollDate (a) (b) (b-a) (a/b) (c) ((b-a)/(c)

01/01/2007 $ 31,939 $ 41,823 $ 9,884 76.4% $ 12,464 79.3%01/01/2008 37,040 46,470 9,430 79.7% 12,652 74.5%

Pension plan assets and liabilities are not included in the basic financial statements of PHFA.

The following is information as of the most recent actuarial valuations:

Actuarial valuation dates January 01, 2008 and 2007 Actuarial cost method Aggregate* Asset valuation method Market value as determined by the trustee

Actuarial assumptions: Investment rate of return** 7.5% Projected salary increases** 4.5%

* The aggregate actuarial cost method is used to determine the annual required contribution of the employer.Because that method does not identify or separately amortize unfunded actuarial liabilities, information aboutfunded status is prepared using the entry age actuarial cost method and is intended to serve as a surrogatefor the funded status of the Plan.

** Includes moderate inflation rate assumption.

The schedule of funding progress, presented as required supplemental information (RSI) following the notes to thefinancial statements presents multiyear trend information about whether the actuarial value of Plan assets areincreasing or decreasing over time relative to the actuarial accrued liability for benefits.

11. Postemployment Benefits Other Than PensionsEffective July 1, 2007, the Agency adopted the provisions of GASB Statement No. 45, “Accounting and FinancialReporting by Employers for Postemployment Benefits Other Than Pensions.” In addition to the relevant disclosureswithin this note related to the implementation of GASB Statement No. 45, the financial statements reflect a long-term liability and related expenses of $3,041 resulting from the adoption.

Plan Description The Agency sponsors a single-employer defined benefit plan (“Plan”) to provide certain postretirement healthcarebenefits (OPEB) to all former employees who are members of the Employee Pension Plan currently receiving retire-ment income. Such benefits are available to members’ spouses during the life of the retiree. Specific details of thePlan include the provision of certain hospitalization, major medical insurance, physician services and prescriptiondrug coverage. These benefits are provided through insurance companies. The Agency is under no statutory or con-tractual obligation to provide these postretirement healthcare benefits. Because the Plan consists solely of theAgency’s commitment to provide OPEB through the payment of premiums to insurance companies on behalf of itseligible retirees, no stand-alone financial report is either available or generated for the Plan.

Funding Policy Premiums under the Plan for post-employment healthcare benefits are funded by retirees desiring such coverage viaco-pays paid to the Agency in accordance with rates established by the Agency. For the fiscal year ended June 30,2008, contribution rates for Plan members equaled 2.5% of the insurance premium per participant per month. Forthe fiscal year ended June 30, 2008, Plan members receiving benefits paid $8, which was used to offset the Agency’stotal outlays to insurance carriers equaling $322 for current year premiums due. The net outlay from the Agency,which equaled $314, represents the Agency’s net cost paid for current year premiums due.

The Agency currently funds postemployment health care benefits on a pay-as-you-go basis. Although the Agency isstudying the establishment of trusts that would be used to accumulate and invest assets necessary to pay for theaccumulated liability, these financial statements assume that pay-as-you-go funding will continue.

Contribution requirements and benefit provisions of the Plan are established and may be amended by the Membersof the Board.

Annual OPEB Cost and Net OPEB Obligation The Agency’s annual OPEB cost is calculated based on the annual required contribution (ARC) of the Agency, anamount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a levelof funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfund-ed actuarial liabilities (or funding excess) over a period of 30 years.

The following table illustrates the components of the Agency’s annual OPEB cost for the year, the amount actuallycontributed to the Plan, and changes in the Agency’s net OPEB obligation:

June 30, 2008

Annual required contribution (ARC) $ 3,363Annual OPEB expense 3,363Contributions made (322) Increase in net OPEB obligation 3,041 Net OPEB obligation beginning of year –Net OPEB obligation end of year $ 3,041

The Agency’s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obli-gation at June 30, 008 was as follows:

Percentage of Net OPEBAnnual Annual OPEB Obligation

Fiscal Year Ended OPEB Cost Cost Contributed End of Year

June 30, 2008 $ 3,363 10.0% $ 3,041

Because the fiscal year ended June 30, 2008 was the year of transition for GASB Statement No. 45, requirements ofGASB Statement No. 45 have been implemented prospectively; therefore, the above illustration does not reflect sim-ilar information respective of the two preceding years.

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Funded Status and Funding Progress As of July 1, 2007, the most recent actuarial valuation date, the Plan was not funded. The actuarial accrued liabilityfor benefits equaled $28,071, resulting in an unfunded actuarial accrued liability (UAAL) of $28,072. The coveredpayroll (annual payroll of active employees covered by the Plan) equaled $13,382, and the ratio of the UAAL to thecovered payroll equaled 209.8%. Actuarial valuations of an ongoing plan involve estimates of the value of reportedamounts and assumptions about the probability of occurrence of events far into the future. Examples includeassumptions about future employment, mortality, and the healthcare cost trends. Amounts determined regardingthe funded status of the Plan and the annual required contributions of the employer are subject to continual revi-sion as actual results are compared with past expectations and new estimates are made about the future.

The schedule of funding progress, presented as RSI following the notes to the financial statements, is to present mul-tiyear trend information about whether the actuarial value of Plan assets is increasing or decreasing over time rela-tive to the actuarial accrued liability for benefits. However, because the Agency maintains no Plan assets, informa-tion relative to Plan asset required disclosures is not applicable. Additionally, because 2007 was the year of transi-tion for GASB Statement No. 45, requirements of GASB Statement No. 45 have been implemented prospectively;therefore, the RSI does not reflect similar information respective of the two preceding years.

Actuarial Methods and Assumptions Projection of benefits for financial reporting purpose are based on the substantive Plan (the Plan as understood bythe Agency and Plan members) and include the types of benefits provided at the time of each valuation and the his-torical pattern of sharing of benefit costs between the Agency and Plan members to that point. There are no legal orcontractual funding limitations that would potentially affect the projection of benefits for financial accounting pur-poses. The actuarial methods and assumptions used include techniques that are designed to reduce the effects ofshort-term volatility in actuarial accrued liabilities, consistent with the long-term perspective of the calculations.

In the actuarial valuation dated July 1, 2007, the entry age normal cost method was used. Because the Agency fundsits OPEB on a pay-as-you-go basis, the Plan has no assets (investments) used specifically for paying the post-retire-ment medical benefits; therefore, the actuarial assumptions included a 4.5% discount rate, which approximates theexpected rate of return on non-pension investments held by the Agency. Actuarial assumptions also included annu-al healthcare cost trend rates of 9%, initially, reduced by decrements to an ultimate rate of 5% for healthcare costsafter eight years and later. The UAAL is being amortized as a level dollar amount over thirty years on an open basis.

SCHEDULE OF FUNDING PROGRESS FOR THE POSTEMPLOYMENT HEALTHCARE PLAN Entry AgeActuarial UAAL as a

Actuarial Accrued Unfunded PercentageActuarial Value of Liability AAL Funded Covered of CoveredValuation Assets (AAL) (UAAL) Ratio Payroll PayrollDate (a) (b) (b-a) (a/b) (c) ((b-a)/(c)

07/01/2007 $ – $ 28,072 $ 28,072 0.0% $ 13,382 209.8%

Because 2007 was the year of transition for GASB Statement No. 45, requirements of GASB Statement No. 45 havebeen implemented prospectively; therefore, the above illustration does not reflect similar information respective ofthe two preceding years.

12. Interest Rate Swaps

Swap ObjectivesIn order to both reduce the Agency’s overall costs of borrowing long-term capital and protect against the potentialof rising interest rates, the Agency enters into pay-fixed, receive-variable interest rate swap agreements at a cost lessthan what the Agency would have paid to issue conventional fixed-rate debt.

Swap Payments At June 30, 2008, debt service requirements of the Agency’s outstanding variable-rate debt and net swap payments,assuming current interest rates remain constant, are displayed in the following schedule:

Fiscal Year Variable Rate Variable Rate Interest RateEnding June 30 Bond Principal Bond Interest Swap, Net Total

2009 $ 36,290 $ 34,686 $ 36,251 $ 107,227 2010 36,915 33,637 34,402 104,954 2011 34,995 32,918 32,393 100,306 2012 30,385 32,268 30,492 93,145 2013 25,625 31,720 29,030 86,375 2014-2018 219,530 149,318 127,422 496,270 2019-2023 303,905 123,999 100,090 527,994 2024-2028 420,520 92,436 71,394 584,350 2029-2033 432,760 51,999 38,544 523,303 2034-2038 318,170 13,456 7,209 338,835

$ 1,859,095 $ 596,437 $ 507,227 $ 2,962,759

As interest rates vary, variable-rate bond interest payments and net swap payments will also vary.

Fair Value Because interest rates have changed since the agreements became effective, a majority of the Agency’s interest rateswaps have a positive or negative fair value as of June 30, 2008. Changes in fair values are countered by reductionsor increases in total interest payments required under variable-rate bonds. Given that payments on the Agency’s vari-able-rate bonds adjust to changing interest rates, the associated debt does not have corresponding increases in fairvalue.

Credit Risk All of the Agency’s swaps rely upon the performance of the third parties who serve as swap counterparties, and asa result, the Agency is exposed to credit risk—i.e., the risk that swap counterparty fails to perform according to con-tractual obligations. The appropriate measurement of the risk at the reporting date is the fair value of the swaps, asshown in the column labeled “Fair value of contract” in the table above. The Agency is exposed to credit risk on theoutstanding swaps, which have positive fair values. As of June 30, 2008, the Agency is exposed to a total of $23,873of credit risk to counterparties. To mitigate credit risk, the Agency maintains strict credit standards for swap counter -parties. Additionally, credit events can trigger certain termination provisions of collateral provisions as outlined inthe swap agreements.

Significant Terms The terms, fair value and credit rating of the Agency’s outstanding swaps as of June 30, 2008, are included in thefollowing schedule:

Counter- Fixed VariableFairParty and Bond Notional Effective Maturity Rate RateValue ofRating* Issue Amount Date Date Paid Received Contract

Goldman 1999-67B $19,885 8/2002 4/2029 5.950% 1-month LIBOR plus 50bps $ (2,061)Sachs 2001-72C 20,210 9/2001 10/2023 5.695% 1-month LIBOR (1,327)AAA/Aaa RHR2002A** 55,765 7/2002 1/2021 3.575% 67% of 1-week LIBOR (2,814)

RHR2002B** 18,520 7/2002 1/2021 3.575% 67% of 1-week LIBOR –2002-74A 30,000 8/2002 10/2032 4.285% 67% of 1-month LIBOR (1,556) 2003-77B** 59,900 9/2003 10/2033 4.060% 67% of 1-month LIBOR (1,460) 2003-77C 13,075 9/2003 4/2012 2.690% 67% of 1-month LIBOR (103) 2004-81B 9,262 4/2004 4/2013 2.365% 67% of 1-month LIBOR (10) 2004-81C** 62,740 4/2004 10/2034 3.557% 67% of 1-month LIBOR (46) 2004-84C 15,365 9/2004 4/2018 3.115% 67% of 1-month LIBOR (174) 2004-84D** 58,335 9/2004 10/2034 3.879% 67% of 1-month LIBOR (1,164) 2004-86B** 68,120 11/2004 10/2033 3.417% 67% of 1-month LIBOR (1,088) 2004-86C** 19,790 12/2004 10/2035 4.125% 67% of 1-month LIBOR (95) 2005-89** 115,215 6/2005 10/2035 3.605% 67% of 1-month LIBOR (1,030)2005-91B 70,000 12/2005 10/2036 3.953% 67% of 1-month LIBOR (2,129)2006-94B 35,165 7/2006 4/2027 4.152% 69% of 1-month LIBOR (2,365)2007-99C 15,000 9/2007 10/2023 3.885% 69% of 1-month LIBOR (865)

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2007-99D 69,255 9/2007 4/2015 5.149% 1-mth LIBOR rounded up .001% (3,258)

Counter- Fixed VariableFairParty and Bond Notional Effective Maturity Rate RateValue ofRating* Issue Amount Date Date Paid Received Contract

UBS AG 2000-70B 5,545 4/2001 4/2011 6.927% 1-month LIBOR 260AA-/Aa1 2002-73C 5,270 3/2002 4/2010 5.017% 1-month LIBOR 107

2002-75A 30,000 12/2002 10/2032 3.957% 70% of 1-month LIBOR 3132003-79B** 57,350 12/2003 10/2033 3.997% 65% of 1-month LIBOR + 25bps 3,1142004-83B 26,815 8/2004 10/2019 3.410% 65% of 1-month LIBOR + 25bps 4622004-83C** 42,905 8/2004 10/2035 4.060% 65% of 1-month LIBOR + 25bps 2,0012004-85B 26,505 11/2004 4/2019 3.168% 65% of 1-month LIBOR + 25bps (116)2004-85C** 44,645 11/2004 10/2035 3.879% 65% of 1-month LIBOR + 25bps 1,6872005-87B 40,440 3/2005 10/2023 3.460% 65% of 1-month LIBOR + 25bps 6802005-87C** 47,300 3/2005 10/2035 3.882% 65% of 1-month LIBOR + 25bps 1,3582005-90C** 60,820 9/2005 4/2036 3.692% 65% of 1-month LIBOR + 25bps 822006-92B** 42,870 3/2006 10/2036 3.996% 65% of 1-month LIBOR + 25bps 1,2342006-95C** 39,180 9/2006 4/2026 4.115% 65% of 1-month LIBOR + 25bps 1,6092007-97D1 26,610 3/2007 10/2014 4.922% 1-month LIBOR 9272007-97D2 12,710 3/2007 4/2012 4.862% 1-month LIBOR 3832007-100C 40,000 12/2007 4/2038 4.136% 65% of 1-month LIBOR + 25bps 4,5242007-100D 59,230 12/2007 10/2013 4.471% 1-month LIBOR 1,584

Bear Stearns RHR2003A** 54,455 6/2003 7/2020 3.457% 70% of 1-month LIBOR 1,647 AAA/NR RHR2003B** 54,455 6/2003 7/2020 3.547% 70% of 1-month LIBOR 1,901

Lehman MF2003 18,870 6/2003 4/2019 3.860% 1-month LIBOR + 15bps (397) NR/Aaa

PNC Bank VRBD2004 20,000 2/2004 1/2034 3.945% 65% of 1-month LIBOR + 25bps (192) AA-/Aa3

Merrill 2004-82B 45,390 5/2004 10/2030 3.643% 61% of 1-month LIBOR + 39bps (860) Lynch 2004-82C** 35,220 5/2004 10/2034 4.164% 61% of 1-month LIBOR + 39bps (1,088) A/A1 2005-88B 51,910 5/2005 10/2035 3.500% 61% of 1-month LIBOR + 39bps (711)

2005-88C** 31,930 5/2005 10/2035 3.975% 61%of 1-month LIBOR + 39bps (401) 2006-93B 37,185 5/2006 4/2037 4.266% 61% of 1-month LIBOR + 39bps (2,062) 2007-98C** 41,955 5/2007 10/2037 4.105% 61% of 1-month LIBOR + 39bps (1,017)

RBC Capital MF2005-K** 26,350 3/2005 1/2036 5.183% 1-month LIBOR (1,526) Markets AA-/Aaa

* Credit Ratings supplied by Standard and Poor’s/Moody’s. ** Indicates an embedded option to reduce the notional amount without a payment to the counterparty. LIBOR = London Interbank Offered Rate bps = Basis points.

Basis, Interest Rate and Termination Risks Basis risk exists to the extent the Agency’s variable-rate bond payments do not exactly equal the index of the swap.If any of the swaps are terminated, the associated floating rate bonds would no longer carry synthetic fixed interestrates and, thus, the Agency would be exposed to interest rate risk. This risk is mitigated by the fact that the termi-nation payment could be used to enter into an identical swap at the termination date of the existing swap. Further,if any of the swaps have a negative fair value at termination, the Agency would be liable to the counterparty for pay-ments equal to the swaps’ fair value. The Agency or the counterparty may terminate any of the swaps if the otherparty fails to perform under the terms of the agreement. Furthermore, the Agency maintains the option to terminateswap agreements anytime. As of June 30, 2008, the Agency is not exposed to any additional termination risk on itsinterest rate swaps.

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Rollover Risk Rollover risk is the risk that a swap associated with a bond issue does not extend to the maturity of that debt. Whenthe swap terminates, the associated debt will no longer have the benefit of the swap.

The Agency is exposed to rollover risk on the following debt: Debt Swap

Associated Maturity TerminationBond Issue Dates Dates

2000-70B 10/2028 04/2011 2001-72C 10/2032 10/2023 2002-73C 04/2032 04/2010 2004-81B* 10/2034 04/2013 2004-82B* 04/2034 10/2030 2004-83B* 04/2035 10/2019 2004-85B* 04/2035 04/2019 2004-86B* 10/2035 10/2033 2005-87B* 04/2035 10/2023 2005-88B* 10/2036 10/2035 2005-88C* 04/2037 10/2035 2007-97D1 10/2037 10/2014 2007-97D2 10/2037 04/2012 2007-99D 04/2023 04/2015 2007-100D 04/2038 10/2013

* While the maturity dates for these tax-exempt bond issues differ from the associated interest rate swap termina-tion dates, the principal amount of these bond issues outstanding equals the notional value of the associated inter-est rate swaps.

13. Advances Receivable, Payable and TransfersAdvances to and from other funds is summarized below for the year ended June 30, 2008:

Advance payable fund:Multifamily Program $ 206Single Family Program 11,500HEMAP 2,806Total $ 14,512

Advance receivable fund:General fund $ 14,512

Interfund transfers in:Single Family Program 55,610Interfund transfers out:General fund $ 22,267 Multifamily Program $ 33,343

$ 55,610

REQUIRED SUPPLEMENTAL INFORMATION (UNAUDITED)June 30, 2008(in thousands of dollars)

Schedule of Retirement Plan Funding ProgressActuarialAccrued UAAL as a

Actuarial Liability Unfunded PercentageActuarial Value of (AAL) - AAL Funded Covered of CoveredValuation Assets Entry Age (UAAL) Ratio Payroll PayrollDate (a) (b) (b-a) (a/b) (c) ((b-a)/(c)

01/01/2006 $ 26,864 $ 37,975 $ 11,111 70.7% $ 11,565 96.1%

01/01/2007 31,939 41,823 9,884 76.4% 12,464 79.3%

01/01/2008 37,040 46,470 9,430 79.7% 12,652 74.5%

The information presented below in the required supplementary schedule was determined as part of the actuarial valu-ation at the dates indicated. Additional information as of the latest actuarial valuation follows:

Valuation date January 01, 2008 Actuarial cost method Aggregate Amortization method * Remaining amortization period * Amortization period open or closed * Asset valuation method Market Value as determined by the Trustee

Actuarial assumptions: Investment rate of return 7.5% Projected salary increases 4.5% Includes inflation at: Moderate rate based on historical averages Post-retirement benefit increases none

* Because the aggregate actuarial cost method does not identify or separately amortize unfunded actuarial accruedliabilities, information about the Plan’s funded status and funding progress has been prepared using the entry ageactuarial cost method for that purpose. The information presented is intended to serve as a surrogate for the fund-ed status and funding progress of the Plan.

Schedule of Funding Progress for the Postemployment Healthcare PlanEntry AgeActuarial UAAL as a

Actuarial Accrued Unfunded PercentageActuarial Value of Liability AAL Funded Covered of CoveredValuation Assets (AAL) (UAAL) Ratio Payroll PayrollDate (a) (b) (b-a) (a/b) (c) ((b-a)/(c)

07/01/2007 $ – $ 28,072 $ 28,072 0.0% $ 13,382 209.8%

Because 2007 was the year of transition for GASB Statement No. 45, requirements of GASB Statement No. 45 have beenimplemented prospectively; therefore, the above schedule does not reflect similar information respective of the two pre-ceding years.

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8786

EXECUTIVEBrian A. Hudson, Executive DirectorCarrie M. Barnes, Executive Assistant to Executive DirectorRobert F. Bobincheck, Director of Strategic Planning & PolicyPaula J. Brightbill, Public Information Officer IIAndrea R. Cunningham, Programs CoordinatorGena K. Fairfax-Hudson, Programs Coordinator IIWilliam W. Fogarty, Director of Government AffairsPhillip M. Friday, Director of Information ResourcesKim A. Gallagher, Compliance Officer IJennifer A. Gerace, Senior Business Development OfficerSamara Gomez, Law ClerkJohn F. Goryl, Associate CounselJodi L. Hall, Quality Control Officer ILarry E. Jackson, Manager of Internal AuditTheodore F. Jackson, Senior Compliance OfficerAnne Johnson, Legal AdministratorCasey A. Lenker, Temporary EmployeeEdgardo I. Martinez, Technical Support SpecialistRyanne E. Mucha, Assistant CounselCharlotte L. Nelson, Executive AssistantRebecca L. Peace, Chief CounselTerri L. Redmond, Manager of Counseling & Education Sonya Roberts, SecretaryKaren L. Smith, Business Development OfficerChristine M. Stewart, Senior AuditorJoLynn M. Stoy, Associate CounselMargaret A. Strawser, Legal Executive AssistantLisa Yaffe, Director of Business DevelopmentMelissa Zorbaugh, Policy Associate

FINANCE AND ADMINISTRATION

Accounting and Loan Servicing DivisionAnthony J. Julian, Jr., DirectorKimberley A. Ayala, Senior Servicing OfficerBrittany S. Bassett, Servicing Specialist I George C. Bemesderfer, Jr., Manager of EscrowSonya M. Boyer, Servicing Specialist IThomas F. Brzana, Jr., Manager of Business SystemsDarlena M. Bucher, Servicing Assistant IMyra Cartagina, Servicing Specialist I Elis Conde, Servicing Assistant IIDavid C. Daniel, Servicing Assistant ILonnie C. DeVan, Business Systems AnalystMarguerite M. Dowling, Senior Servicing OfficerDebra E. Fisher, Servicing Assistant IIJulie D. Fissel, Servicing Officer IJoanne H. Fitzgerald, Servicing Specialist ILisa R. Fulton, Servicing Officer ICharles E. Funk, Jr., Servicing Assistant IIMary L. Garcia, Servicing Officer INaomi P. Garcia, Servicing Officer IIBrian J. Good, Servicing Officer I

Thomas L. Gouker, Manager of CollectionsF. Elise Gutshall, Servicing Officer IDebbie M. Hammond, Servicing Officer IThomas Harbaugh, Servicing Assistant IIKristina L. Jarrett, Servicing Specialist IICrystal A. Kerstetter, Staff Accountant IIAnne C. Klitsch, Servicing Officer IIRosa E. Krouse, Servicing Officer INancy J. Lackey, Servicing Officer IBrenda M. Lawrence, Servicing Specialist IIMonique Mason, Servicing Assistant IThresa A. Mateer, PHIF Officer ICathy A. Matter, Senior Servicing OfficerShanta D. Mauro, Servicing Specialist IPenny M. Mullins, Servicing Officer IISue A. Peck, Senior Servicing OfficerElixandra M. Roman, Servicing Assistant IBrenda Rudy, Servicing Assistant IIRichelle L. Strawser, Senior Servicing OfficerJoAnn Wade, Senior Servicing OfficerLuAnne F. Wiest, Servicing Officer IPriscilla Williams, Servicing Officer IAngel Zarecky, Servicing Specialist I

Finance DivisionJoseph Knopic, DirectorEdwin A. Beam, Jr., Manager of REO LaSonya E. Burhannan, Mortgage Servicing Representative IChristine A. Burke, Mortgage Servicing Representative IElaine S. Cox, REO Coordinator IIAmy M. Diehl, Finance CoordinatorPamela K. Frazier, Senior Investment OfficerBen G. Housman, Jr., Mortgage Servicing Representative IIApril L. Karaki, Assistant Finance OfficerKathleen D. Raley, Finance Officer IIJohn H. Richards, Manager of FinanceBonita M. Russell, Senior Mortgage Servicing RepresentativeDonna M. Sciortino, Manager of InvestmentsHeather A. Shull, Investment Officer IIJennifer L. Smallwood, Senior Mortgage Servicing

RepresentativeCharlene A. White, REO Coordinator IIKelly R. Wilson, Finance Officer IThomas J. Zugay, Mortgage Servicing Representative II

Human Resources DivisionSusan D. Heilig, DirectorMichael L. Brightbill, Building Services CoordinatorArlene M. Frontz, Purchasing Officer IIWendy K. Klinger, Human Resources Officer IIPhillip C. Peck, Human Resources Clerk INadira L. Vazquez, SecretaryMartha Wright, Receptionist

Information Technology DivisionRichard N. Nichols, DirectorBrenda J. Bailey, Web/Application Developer IIDaniel A. Barbour, Computer Program Analyst IIMichael D. Blattenberger II, Web/Application Developer IKimberly A. Boal, Manager of Network ServicesChristopher L. Broughton, Help Desk CoordinatorKris A. Clymans, Senior Network Systems EngineerScott Davis, GIS TechnicianKathleen Deitzler, Senior Computer Programmer AnalystDeborah A. Geary, Senior Computer Programmer Analyst Michael J. Horengic, Senior Computer Programmer AnalystDavid H. Korot, Help Desk AssociateTrudy R. Lehman, Lead Technical Support SpecialistDaryl G. Martin, Senior Computer Programmer AnalystDaniel K. Nornhold, Senior Computer Programmer AnalystHarry N. Ramsey, III, Senior Computer Programmer AnalystJohn B. Senich, Telecommunications OfficerDaniel Serafin, Help Desk AssociateKevin J. Wike, Manager of Application Development

MULTIFAMILY OPERATIONSDavid L. Evans, Assistant Executive Director

Development DivisionHolly J. Glauser Abel, DirectorRichard C. Allen, Tax Credit Officer IICrystal L. Baker, Assistant Housing Services RepresentativeJoanna L. Ball, Administrative AssistantSusan M. Belles, Senior Tax Credit OfficerFrank Bobak, Jr., Senior Systems Analyst Carol A. Carroll, Tax Credit Officer II Eileen J. Demshock, Manager of Tax Credit ProgramP. David Doray, Senior Development Officer Douglas S. Haughton, Jr., Development Officer IISherry J. Heidelmark, Development Officer IMarge A. McCutcheon, Multifamily Executive AssistantMartha R. McGraw, Housing Services Representative IIAnn A. Mermelstein, Senior Development OfficerKristina A. Miller, Development CoordinatorGelene M. Nason, Supportive Housing Officer ILaVera A. Nelson, Assistant Tax Credit OfficerBrian L. Shull, Senior Development OfficerJ. Gail Shull, Tax Credit Officer IIBeth A. Silvick, Development Officer IILinda A. Stewart, Senior Tax Credit Officer

Housing Management DivisionJoseph T. Toia, DirectorSherri Alleman, Tax Credit CoordinatorTimothy C. Barefield, Voucher AnalystJohn R. Bink, Financial Analyst ICheryl A. Boyanowski, Voucher AnalystLisa E. Case, Senior Housing Management RepresentativeJudith J. Chilcote, Contract Administration CoordinatorFrank T. Dorwart, Manager of Project OperationsJohn J. Dotsey, Senior Financial Analyst

Carl R. Dudeck, Jr., Manager of Financial OperationsShana M. Erdley, Insurance SpecialistKathy E. Esworthy, Senior Tax Credit AnalystPaul A. Fatula, Financial Analyst ICharlotte M. Folmer, Senior Financial Analyst Angela M. Harris-Reider, Financial Analyst IKristina Hinds, Voucher AnalystKathy L. Hughes, Management CoordinatorBarbara S. Huntsinger, Housing Management CoordinatorMalika Jiwanji, Data Entry Clerk IKristen R. Kasi, Tax Credit CoordinatorKathleen D. Liddick, Senior Financial AnalystMonique R. Martin, Special Claims Analyst Stephanie L. McCauslin, Data Occupancy OfficerOlga N. Mercado, Administrative AssistantJesse Murphy, Voucher AnalystKristen T. Nagel, Contract Administration Officer IIHarry E. Neuhart, Senior Financial AnalystLinda S. Newport, Manager of Contract AdministrationGary W. Paiano, Housing Management Representative IINichole L. Proctor, Housing Management Representative ISonja L. Ralls, Voucher AnalystMaryellen Schenck, Assistant Tax Credit AnalystPeggy A. Snyder, Senior Voucher AnalystDaniel Sommerville, Contract Administration Officer IILa’Kisha Thomas, Voucher AnalystShamell Wallace, Voucher AnalystCynthia White, Data Entry Clerk IJanelle R. Wood, Tax Credit Coordinator

Technical Services DivisionMichael G. Kosick, DirectorKenneth E. Bobb, Construction Document Examiner Kimberly J. Boyer, Construction Document Examiner IIClark A. Grumbine, Technical Services Representative IIKevin L. Kanoff, Staff Engineer/Energy CoordinatorAdam M. Kitchen, Environmental/Site SpecialistMark E. Kocan, Technical Services Representative IIDonna J. McGuigan, Technical Services OfficerSteven E. Moses, Facilities EngineerKristy L. Provost, Utility Allowance CoordinatorStanley E. Salwocki, Manager Architecture & Engineering Ralph E. Shires, Technical Services Representative I

SINGLE FAMILY OPERATIONS

Homeownership Programs DivisionKathryn W. Newton, DirectorEllen W. M. Bechtel, Compliance Officer IITami M. Blessing, HERO Coordinator II Tracy L. Dressler, Compliance Officer IJoan E. Duckett, Senior Loan Workout SpecialistFrederick W. Fegan II, Purchase ManagerLeah R. Finley, Loan Coordinator IIChristina L. Fisher, Administrative AssistantAngela M. Green, Purchase Officer IJessica L. Haney, Settlement Officer SpecialistYvette M. Jones, Administrative Assistant

STAFF OF THE PENNSYLVANIA HOUSING FINANCE AGENCY

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Lenora F. Kerstetter, Senior Post Purchase OfficerAngela L. Kocher, Post Purchase CoordinatorClay J. Lambert, Customer Service Coordinator IVikki C. Lauer, Compliance Officer IITammy S. Leitzel, Purchase Officer IIDoreen D. Martin, Loan Workout SpecialistKastina L. Matos, Customer Service Administrative Assistant Tammy J. Miller, Compliance ManagerPatricia A. Musser, Senior Compliance OfficerGeorge E. Perry, Purchasing CoordinatorColeen R. Peters, Business Development OfficerMildred C. Phoenix, Temporary EmployeeCarol E. Purdy, Post Purchase Officer ITiffany M. Readinger, Systems AnalystMelissa Reifsnyder, Post Purchase CoordinatorDanielle E. Rudy, Customer Service Administrative AssistantRoberta A. Schwalm, Senior Special Programs OfficerDenise M. Shearer, Customer Service CoordinatorCoral F. Smith, Purchase Officer II Kimberly A. Snow, SecretaryM. Dona Stewart, Business Development ManagerBetsy L. Stilo, HERO Loan Workout Specialist Juanita M. Underwood, Post Purchase Officer IMarisa G. Weaver, Administrative AssistantMonica M. Williams, Assistant Compliance OfficerDenise L. Wolfgang, Senior Compliance OfficerKaren L. Zapotosky, Post Purchase ManagerGary P. Zimmerman, Compliance Officer II

Homeowners’ Emergency Mortgage AssistanceProgram DivisionDaryl D. Rotz, DirectorJoan Alicea, Loan Processor II Elaine M. Artz, Staff Accountant IIDonette G. Cooper Brezgel, Administrative Services

Coordinator IIRebecca L. Chandler, Assistant Loan OfficerLynda A. Clark, Loan Officer IISonya L. Clemons, Loan Officer IMichael D. Cooper, Manager of AppealsM. Felicity Diggs, Finance CoordinatorRuby M. Dodson, Loan Counselor VKristal L. Dressler, Assistant Loan OfficerKatie M. Dunlop, Administrative Services CoordinatorAnne M. Ellex, Closing OfficerPamela I. Fisher, Hearing Examiner INirvana A. Franklin, SecretaryBarbara A. Gilbert, Temporary EmployeePhilip Goldstein, Temporary EmployeeDonald K. Goss, Loan Officer IINicole C. Griffin, SecretaryStephanie Harvey, Assistant Accountant IIDiane M. Hoffman, Senior AccountantSherry C. Horn, Loan Counselor III

Wendy I. James, Data Entry ClerkResa P. Kepner, Appeals OfficerRegine O. Klimek, Loan Counselor IIICarolyn L. Kochenour, Temporary EmployeeVinh T. Lam, Loan Counselor IChristina M. Lebo, SecretarySandra O. Lewis, Loan Officer IKeisha R. Luckett, Loan Counselor ITracy J. McMurray, Loan Closing Coordinator IIBonnie L. Nail, Assistant Accountant IIStacey A. Odogwu, SecretaryLin C. Patch, Appeals OfficerGeorge F. Pfeiffer, Loan Officer IIKristin L. Rode, Administrative Services Coordinator IILisa A. Rudy, Loan Officer IIRoberta A. Sheaffer, Senior Loan Closing OfficerAiris J. Smallwood, Temporary EmployeeAngela C. Smith, Temporary EmployeeRonald L. Smith, Senior Collections OfficerSamantha J. Stevens, Assistant Loan OfficerCarmela M. Swartz, Hearing Examiner IILori S. Toia, Manager of Loan Processing

Norristown OfficeNancy Twyman, Manager of Norristown OfficeDamien C. Allen, Housing Services Representative IWilliam G. Bailey, Jr., Development Officer IIRobert G. Butcher, Housing Services Representative IPeggy A. Colson, Norristown Officer CoordinatorHernando Espinosa, Housing Management Representative IJames E. Galia, Technical Services Representative IIJay R. Hausher, Senior Technical Services RepresentativeMary I. Johnson, Assistant Housing Management

RepresentativeJohn S. Paczewski, Technical Services Representative IIBarbara P. Stephens, Public Affairs OfficerLorraine Weaver-Tawwad, Housing Management

Representative II

Pittsburgh OfficeBrenda B. Wells, Director of Western RegionStephen E. Chopek, Housing Services Representative IDuane M. Davis, Technical Services Representative IKristin DeSantis, Administrative AssistantTonya L. Esway, Closing Officer Carla H. Falkenstein, Manager of Housing ServicesMarcia M. Hess, Regional Customer Services RepresentativeMargaret E. MacCall, Housing Management Representative IRoy D. Redman, Housing Management Representative IIRobert S. Rider, Technical Services Representative IIMichael A. Scott, Technical Services Representative IMary Ann Sipos, Senior Housing Management RepresentativeCharles E. Swope, Senior Technical Services RepresentativeAloise E. Tomich, Housing Management Representative II

211 North Front Street • Harrisburg, PA 17101717.780.3800www.phfa.org

PENNSYLVANIA HOUSING FINANCE A GENCY · 2016-06-06 · by modifying or refinancing unaffordable mortgage loans. To date, the programs have already made $20,000,000 of loans to help

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